Digest of important case law – September 2012

S.2(15:Definitions-Charitable purpose-Institute conducting coaching classes and charging fees, denial of exemption is  held to be not valid.(S. 10(23C) (vi))
The Institute of Chartered Accountants of India was denied exemption u/s. 10(23C) (vi) for the A.Y. 2006-07 onwards on the grounds that (i) the Institute was holding coaching classes and, therefore, was not an educational institution as per the interpretation placed on the word “education” used in sec. 2(15); (ii) the Institute was covered under the last limb of charitable purpose, i.e, advancement of any other object of general public utility. In view of the amendment made in sec. 2(15) of the Act with effect from April 1, 2009, for the asst. year 2009-10 onwards, the Institute was not entitled to exemption as it was an institution which conducted an activity in the nature of business and also charged fee or consideration.
Held, that the fundamental or dominant function of the Institute was to exercise overall control and regulate the activities of the members/enrolled chartered accountants. A very narrow view had been taken that the Institute was holding coaching classes and that this amounted to business. The Institute had framed the Chartered Accountants Regulations, 1988, and the Regulations provided for training of students, their examination, award of degrees and membership of the Institute. There was a clear distinction between coaching classes conducted by private coaching institutions and the courses and examinations which were held by the Institute. The question whether the Institute carried on business had not been examined with proper perspective. The Institute maintained that it never granted any loan and/or advance to the Institute of Chartered Accountants of India Accounting Research Foundation. The facts regarding this question had not been considered. The order denying the exemption was not valid. (A.Y. 2006-07, 2007-08, 2008-09, 2009-10)
Institute of Chartered Accountants of India  (ICAI) v. Director General of IT (E)
(2012) 347 ITR 99 (Delhi)(High Court)

S. 2(22)(e ): Definitions –Dividend- Deemed dividend – Share Application money – No material placed on record by the department to show that the entries recorded in the books of accounts are false, untrue and without any basis, section 2(22)(e) was not applicable.
The assessee was engaged in the business of website hosting, domain name registration and allied services and showed share application money received from another company under the head current liabilities. The AO observed that the amount was in the nature of loans and advances and had common directors. It was held that it is a settled law that the making of an entry or the absence of an entry could not determine the rights and liabilities of a party. In the absence of any material placed on record by the department to show that the entries recorded in the books of accounts are false, untrue and without any basis, the amount received by the assessee did not come under the scheme of loan and advances. Section 2(22)(e) was not applicable. (A.Y. 2006-07)
ITO v. Direct Information P. Ltd. (2012) 18 ITR 562 (Mum.)(Trib.)

S.4: Income –Subvention assistance- Capital receipt-Subvention assistance received by assessee from its holding company to recoup losses likely to be suffered by it was a capital receipt and not liable to tax. [S. 2(24)]
The assessee a 100 percent subsidiary of a German company which is engaged in the activity of housing finance. The holding company granted subvention assistance to the assessee .It was done on the evaluation of the holding company that the assessee was likely to on account of its business activity , incur losses which would be substantial if not entirely eroded .The Assessing Officer held that subvention receipt was by way of casual receipt and liable to tax . On appeal, Commissioner (Appeals) held that receipt was capital in nature . On appeal by revenue, the   Tribunal also  confirmed the order of Commissioner (Appeals). On appeal to the High Court, it was held that the subvention assistance received by assessee from its holding company to recoup losses likely to be suffered by it, was a capital receipt not liable to tax. Appeal of revenue was dismissed.
CIT v. Deutsche Post Bank Home Finance Ltd   (2012) 209 Taxman 313 (Delhi) (High Court)
  

S. 5:Scope of total income – Income-Accrual – Rent of premises – Assessee not tenant in premises ,compensation received for surrender of tenancy rights would be liable to tax in hands of individuals and not in hands of assessee firm
In the instant case, premises in question was given on rent to one Y who ran business in name and style of ‘Bombay Electrical Laundry’. In 1947, Y migrated to Pakistan and Custodian of Evacuee property sold rights, titles and interest of Y to A and V. Their legal heirs continued to hold tenancy rights and continued business in the name and style of ‘Bombay Electrical Laundry’. None of the partners at any point of time had ever introduced his/her share in tenancy as capital in accounts of firm. Thus, it was held that since assessee firm was never a tenant in aforesaid premises, compensation received for surrender of tenancy rights would be liable to tax in hands of individuals and not in hands of assessee firm. (A.Y. 2006-07)
ITO v. Bombay Electrical Laundry (2012) 138 ITD 17 (Mum)(Trib.)  

S.5:Scope of total income-Income-Accrual – DTAA – India – USA – Compensation for settlement of class action dispute in USA. (Art. 23)
An Indian company, having made some misstatements by manipulating its financial statements with the alleged connivance of its auditors, the cause of action for the class action suit filed against them claiming damages in USA arose in India and, therefore, the amount deposited by Indian Company and its auditors in the escrow account as part of the settlement of the class action dispute is income from other sources arising in India. It is also chargeable to tax in terms of para 3 of article 23 of the Indo-US DTAA
IC & Ors., In Re (2012) 76 DTR 177 / 252 CTR 265 (AAR)

S.9: Income deemed to accrue or arise in India – DTAA-India –USA  Telecom engineering services – As contract for providing technical experts and making available expertise, hence held as  fees for included services [Art 12(4b)]
The assessee was a US company specialized in providing highly qualified technocrats and technology relating to telecom sector and higher solutions in telecom engineering services. The assessee entered into an agreement with an Indian company for providing qualified technocrats for its project in India. It was held that as it was clear from various clauses of agreement that it was a contract for providing technical experts and making available expertise of assessee in this field, hence the service rendered assessee clearly fell within purview of clause 4(b) of Art 12 of Indo- US DTAA, and thus amount received in respect of said services was taxable in India as fees for included services. (A.Y. 2003-04)
Avion Systems Inc. v. DDIT (2012) 138 ITD 57 (Mum.) (Trib.)

S. 9: Income deemed to accrue or arise in India – DTAA –India – UAE – Head office expenditure. [S.44C,Art. 7(3)]
Assessee is a foreign bank incorporated in UAE. It had two branches i.e. PEs in India. Profits of PE were computed in hands of assessee as per provisions of article 7(3). An amount of Rs. 40.04 lakhs was allocated to PEs representing head office expenses incurred and attributable to such Indian PEs. The AO restricted the deduction for head office expenses by applying provisions of section 44C. Applicability of domestic law, viz, section 44C had been provided for allowing deduction of section expenses of PEs by amendment brought in article 7(3) w.e.f. 1/4/2008 and it would not have any retrospective effect. Thus, provisions of section 44C had been provided for allowing deduction of expenses of PEs by amendment brought in article 7(3) w.e.f. 1/4/2008 and it would not have any retrospective effect. Hence, it was held that the provisions of the said section were not applicable to the instant case and therefore, income of Indian PEs of assessee was to be computed after allowing all expenses attributable to its business in India including head office expenses.(A.Y. 1995 – 96 to 2000-01)
Abu Dhabi Commercial Bank Ltd. v. Asst. DIT (IT) 2012) 138 ITD 83 (Mum)(Trib)

S. 9: Income deemed to accrue or arise in India – DTAA –India–USA–UK- Kingdom of Thailand– Agreement for making interior and exterior changes – No technical services rendered – Not taxable in India. (S.5,195,201, Art. 5, 12, 13, 15. 7, 14, 22)
The assessee was engaged in the business of running a five star hotel at Hyderabad. It entered into four separate and independent agreements with non – resident consultants for making interior and exterior changes and made payments in respect to certain services rendered. There was no permanent establishments for non-resident. It was held that the services rendered did not involve any technical expertise nor did it make available any technical know-how plan, design etc. The services rendered by the non-resident company was inspection of the hotel, reviewing the facilities, comparing them with the standards and suggesting improvements or changes wherever required. Amount paid to non-resident is not  assessable  in India. (A.Y. 2003-04 to 2005-06)
ACIT v. Viceroy Hotels Ltd. (2012) 18 ITR 282 (Hyd.)(Trib.)

S. 9: Income deemed to accrue or arise in India – DTAA India – Sri Lanka – Capital Gain – Article 13(4) gives exclusive power to tax such income in Sri-Lanka (Art. 13(4) )
Assessee a resident of India was holding shares in company T incorporated in Sri Lanka. The said shares were sold by the assessee. The assessee claimed that the capital gain could not be taxed in India because such sale was governed by Article 13(4)of India – Sri Lanka DTAA. It was held that the words ‘may be taxed’ under Art. 13(4) of DTAA gave exclusive power to tax such income in Sri-Lanka and thus, said income could not be taxed in India. (A.Y. 2007-08)
Apollo Hospital Enterprise Ltd. v. Dy.CIT (2012) 53 SOT 103 (Chennai)(Trib.)

S.9:Income deemed to accrue or arise in India-Income from employment -DTAA-India USA – Applicant has obligation to withhold taxes. (S.195, (Art-15
Applicant company is fully owned subsidiary of US company T. It entered into an agreement with T for seconding certain number of employees. Seconded employees shall continue to have their pay roll processed by T but applicant is to reimburse T for those amounts and also pay Tax service charge.  Right to terminate employee is with T. It was held that since applicant has not become employer of seconded employees, what applicant pays to T is income of T and not in nature of reimbursement of salary and while paying amounts applicant has obligation to withhold taxes u/s. 195.
Target Corpn. India (P) Ltd In re (2012) 348 ITR 61 / 209 Taxman 601 / 252 CTR 242 (AAR)

S.9(1)(i):Income deemed to accrue or arise in India-Resident of Switzerland- Partnership firm-Legal fees received is held to be taxable-DTAA-India-Switzerland(Art. 3(d), 4, 14).
A partnership formed in Switzerland not being a taxable entity under the Swiss law, is not a `person’ within the meaning of cl. (d) of art. 3 of the Indo – Swiss DTAA and, therefore, the applicant, a Switzerland based law firm cannot claim the benefit of the DTAA and, there is no occasion to apply art. 14 of the DTAA on the basis that the fees received by it for legal services is a professional income.
Payment made by an Indian company to the applicant Swiss partnership firm for representing it in adjudication proceedings regarding a dispute with another Indian company arising out of a contract for construction of a structure or project in India is an income arising in India even though, as per the agreement, the site of the adjudication is outside India as the source of the income received by the applicant for rendering professional services is in India and, therefore, the legal fees received by the applicant is taxable in India.
Schellenberg Wittmer & Ors In Re (2012) 76 DTR 293 (AAR )

S. 9(1)(vii): Income deemed to accrue or arise in India- Fees for technical services- 100 percent  subsidiary-DTAA-India-Australia(S. 90, 195)Article, 5 12).
Applicant, an Indian Company, engaged in the business of development of computer software and related services, undertakes work in Australia and sub contracts a part thereof to its Australian subsidiary Infosys Australia which performs the work wholly in Australia . Though Infosys Australia is a 100 per cent subsidiary of the applicant, they are independent entities in the eye of law . Unless it is postulated that the applicant is a PE of Infosys Australia, the income of Infosys Australia from the work done by it cannot be taxed in India. As per para 5 of art. 12 of the DTAA, it has to be deemed that the income has arisen in India . As per para 5 of art. 12 of the DTAA, it has to be deemed that the income has arisen in India . Fact that the services are rendered in Australia cannot override the legal effect of the circumstances that the contract, as far as Infosys Australia is concerned, is secured from India and the applicant is giving directions to Infosys Australia about the performance of its work. Admitedly, the payment made to Infosys  Australia  would be fees for technical services under s. 9(1)(vii) However, no services are performed in India by Infosys Australia. Thus, it cannot be held that Infosys Australia is making available any technical service to the applicant to as to satisfy the requirement of cl. (g) of para 3 of ar. 12 of the DTAA, therefore,  the fees for technical services paid to Infosys Australia  is not chargeable to tax in India in terms of the DTAA, hence the provisions of section 195 would not be applicable.
Infosys Technologies Ltd, In re (2012) 76 DTR 287 (AAR)

S. 9(1)(vii): Income deemed to accrue or arise in India- Fees for technical services or interest -Upfront appraised fees.-DTAA-India- UK (S. 2(28A, , 90,Article 7, 12, 13)
Fee was charges by the assessee irrespective of whether or not the loan transactions were entered into between the assessee and the applicants. Fee was charged prior to and entirely independent of the loan transaction that was subsequently entered into parties had agreed that the assessee would be entitled to the said fee irrespective of whether the loan transaction was entered into or not.  Interest was separately charged by the assessee in respect of the moneys lent pursuant to the agreements that were entered into ,nor can the fee be said to be in respect of credit facilities granted but not utilized for the said fees preceded the credit facility and had nothing to do with it.  Upfront appraisal  fee, therefore, does not fall within the ambit of art. 12(5) of the DTAA, further, by no stretch of imagination can it be said that the assessee imparted to the applicants or the borrowers, any technical services, much less technical services of the nature referred to in art. 13(4)(c) of the DTAA, said Upfront appraisal  fee was business income and as the assessee did not have a PE in India, the same could not be charged to tax in India under art. 7 of the DTAA. (A.Y. 1998-99)
DIT(International Taxation) v. Commonwealth Development (2012) 76 DTR 233 (Bom.) (High Court)    

S. 9(1)(vii): Income deemed to accrue or arise in India- Fees for technical services-Consultancy charges.
Where consultancy charges were paid by the Indian Company to non-resident consultants rendering services on Indian Company’s offshore projects, source rule exclusion carved out u/s 9(1)(vii)(b) is applicable even though the payments are made from India. (A.Y. 2008-09)
 Ajappa Integrated Project. V. ACIT, ITA No.349/Mds./2012, Dt.25-06-2012, BCAJ Pg. 38, Vol. 44-A Part 5, August, 2012. (Chennai)(Ttib.)

S. 9(1)(vii): Income deemed to accrue or arise in India – Fees for Technical Services – No FTS as services rendered did not involve any technical, managerial or consultancy services
The assessee was engaged in the business of manufacturing and export of garments. It made remittances to a non-resident company SEL, without deduction of tax at source. It was held that the payment in the issue did not fall within the ambit of Fees for technical services u/s 9(1)(vii) as the services were availed to ensure that imports were received in India import were received  in India on time and in correct quantity. It was clear from the records that SEL nowhere was involved in identification of exporter or selecting material and negotiating price and thus, no consultancy services were involved. Role of SEL did not involve much technical knowledge. Further, there was no managerial services involved as SEL was acting on behalf of assessee as its agent and there no independent application of thought process in any activity. (A.Y. 2007-08)
Jeans Knit (P.) Ltd. v. Dy. CIT (2012) 53 SOT 76 (Bang.)(Trib.)  

S. 9(1)(vii): Income deemed to accrue or arise in India – Composite contract –DTAA- India-Netherlands DTAA – Fees for Technical Services. (S.90, 195, Article 12 )
Applicant, a Dutch Company, having entered into a contract with an Indian Company for supply of machinery, spare and wearing parts and technical documentation for the production of autoclaved aerated concrete, and another contract on the same day for supply of project services for erection and installation of the machinery supplied under the first contract, it was actually one indivisible contract for supply, erection, commissioning, testing, etc. of the project which was artificially split up merely to ward off liability to tax on the whole of the transaction and, therefore, the consideration received by the applicant is fees for technical services under the Act as well as the Indo-Netherlands DTAA, chargeable to tax in India and it does not fall under the exception in para 6(a) of Article 12 of the DTAA.
HESS ACC Systems B.V., In Re (2012) 76 DTR 122 / 252 CTR 457 (AAR)

S.9(1)(viii): Income deemed to accrue or arise in India-Managerial, technical or consultancy services- What constitutes a "Dependent Agent Permanent Establishment" & "Place of Management"
(i) The fees received by the assessee, a Swiss company, from enabling sellers registered on its offshore website to sell goods to buyers in India is not assessable as “fees for technical services” u/s 9(1)(viii) as the assessee does not render any “managerial, technical or consultancy services” to the payers. The assessee’s websites are analogous to a market place where the buyers and sellers assemble to transact. By providing a platform for doing business the assessee is not rendering services either to the buyer or to the seller which can be assessed as “fees for technical services“;
(ii) In order to constitute a “Dependent Agent Permanent Establishment” of the assessee under Article 5(5) of the DTAA, it is essential that the agent should “habitually exercise an authority to negotiate and enter into contracts for or on behalf of’ the assessee”. On facts, though eBay India & eBay Motors conducted activities exclusively on behalf of the assessee and thus became its dependent agents, they did not constitute a “Dependent Agent Permanent Establishment” because they did not conduct any of the activities set out in the three clauses of Article 5(5) of the DTAA. By simply providing marketing services to the assessee or making collection from the customers and forwarding the same to the assessee, it cannot be said that eBay India entered into contracts on behalf of the assessee. There are also no examples of any contract entered into by eBay India or eBay Motors for or on behalf of the assessee. Thus the test laid down in Article 5(5)(i) of the DTAA is not satisfied.
 (iii) eBay India & eBay Motors also do not constitute a “place of management” so as to be a PE under Article 5 (2)(a) of the DTAA. A “place of management” ordinarily refers to a place where overall managerial decisions of the enterprise are taken. eBay India & eBay Motors are not taking any managerial decision. They are simply rendering marketing services to the assessee in the form of collection of amount from the customers and remitting the same to the assessee, apart from creating awareness amongst the Indian sellers about the availability of the assessee’s websites in India. All business decisions and deals are settled through the assessee’s websites. eBay India & eBay Motors have no role to play either in the maintenance or the operation of the websites. They have absolutely no say in the matter of entering into online business agreements between the sellers and the assessee or the finalization of transactions between the buyers and sellers resulting into the accrual of the assessee’s revenue. Consequently, they are not a “place of management” of the assessee’s overall business.(A. Y. 2006-2007)
eBay International AG v. ADIT ( Mum.)(Trib)www.itatonline.org.

S.10(15A) : Exempt incomes –Operation of aircraft- Lease—Agreement on or after 1st  day of April , 2007-Existence of lease agreement and aircraft.
A lease, a understood in law, requires transfer of interest/right in the property by the owner to a third person. A lease cannot be created in favour of a third person unless the goods/property is transferred to the lessee and the lessee is in a position to use and utilize the said goods/property. When goods are not in existence, goods/property cannot be transferred to lessee. It is only when an Indian company acquires aircraft on lease under an agreement, which was entered into on or before the 1st April 2007, benefit under the said section is available. Thus, the twin conditions that the agreement should have been entered into on or before 1st April 2007 and there should be acquisition of aircraft under the lease before the said date, have to be satisfied. If the two conditions are not satisfied, benefit under the said section cannot be granted.  Intention behind the proviso to s. 10(15A) is to restrict and not grant benefit after the particulars/specified cut off date i.e. 1st April 2007. However, the legislature did not want to deny benefit in respect of earlier agreements, which had fructified and had been entered into and were already in operation before the said date in the present case, there was no lease but only a possibility or an expectancy as the property or goods in question were not in existence on the date of the so called agreements. Agreements cannot be treated as leases but only as agreements for leases which will/may operate in future exemption u/s. 10(15A) was not therefore available. The Writ petition was dismissed.  
Go Airlines (I) P. Ltd. v. UOI (2012) 76 DTR 353 (Delhi)(High Court)
Kingfisher Airlines Ltd  v. UOI ( 2012) 76 DTR 353(Delhi)(High Court)

S.10(23C): Exemptions- Educational institutions – Horticulture Income – utilised for educational activity – Exemption to be allowed.  
Application  of petitioner trust for grant of exemption u/s. 10(23C) (vi) was rejected on grounds that assessee was engaged in non educational activities of horticulture and generating income from same; and that petitioner had collected fees under head `placement and training’ from students which was not in conformity with fees prescribed. It was held that  amount received from horticulture had been utilized in educational activities of institutions and for infrastructural development, it could not be treated that profit was earned for non educational activities. Denial of exemption was held to be not valid.
Orissa Trust of Technical Education and Training v. Chief CIT, Orissa (2012) 209 Taxman 552 (Orissa) (High Court)

S.10A: Newly established undertakings-Free trade zone-Computation of period of five years-Initial year.
Assessee which had commenced its manufacturing activities in the previous year relevant to A.Y. 1984-85, could claim exemption for A.Y. 1984-85 to 1988-89 and had no option of choosing any five consecutive years for availing the benefit of exemption u/s 10A. In case of an assessee who had already started availing the benefit of S.10A in any assessment year prior to substitution of sub-section (3), there is no manner in which it could exercise option under the new sub-section (3), Hence assessee could not claim exemption u/s 10A  for the assessment year, 1986-87 to 1990-91.(A.Y. 1990-91 )
Expo Packing v. ACIT (2012) 76 DTR 12 (Guj)(High Court)

S. 10B : Newly established hundred per cent export-oriented undertakings – Exemption – Customization of SAP programmes as per the specification of client & its transmission through internet or e-mail – Falls in definition of ‘Computer Programme’ and ‘Produce’, hence, entitled to exemption
The activity of customization of SAP programmes as per the specification and requirements of the overseas clients and transmission thereof through internet or e-mail by the assessee fall within the definition of ‘computer programmes’ as clarified in S. 10BB as well as under Expln. 2 to S. 10B and the same fits into the definition of the term ‘produce’ and, therefore, assessee is entitled for exemption u/s 10B in respect of the receipts from overseas clients.  (A.Y.. 1997-98 & 1999-2000)
Cybertech Systems & Software Ltd. v. CIT (2012) 149 TTJ 17/ 76 DTR 1  (Mum)(Trib.)
CIT v. Cybertech Systems & Software Ltd. (2012) 149 TTJ 17/76 DTR 1 (Mum)(Trib.)

S. 10B: Newly established hundred per cent export-oriented undertakings – Exemption – Interest Income – No direct nexus with the income derived from undertaking by the export of the computer software, no exemption
Interest income has no direct nexus with the income derived by the assessee from its undertaking by the export of the computer software and, therefore, assessee is not entitled to exemption u/s 10B in respect of interest income. (A.Y. 1997-98 to 1999-2000)
Cybertech Systems & Software Ltd. v. CIT (2012) 149 TTJ 17/76 DTR1 (Mum)(Trib.)
CIT v. Cybertech Systems & Software Ltd. (2012) 149 TTJ 17/76 DTR1 (Mum)(Trib.)

S. 10B: Newly established hundred per cent export-oriented undertakings  – Exemption – To claim exemption u/s. 10B, there is no legal bar against outsourcing of activities
Provisions of S.10B do not place any bar on assessee having a separate new undertaking for manufacture and production of same or similar goods, as done earlier because what is required to claim exemption under said section is that undertaking established must be a newly established undertaking. Existence of business is a pre-supposition for formation of a new undertaking by reconstruction or splitting up thereof. Therefore, in a case when there is no business in old unit of assessee before start of production by new EOU, it cannot be concluded that new unit is formed by reconstruction or splitting up of a business already in existence so as to deny exemption u/s. 10B. In order to claim exemption u/s. 10B, there is no legal bar against outsourcing of activities involved in manufacturer or processing of goods as what is required is that undertaking must mainly engage itself in manufacturer or processing of goods, either itself, or through some agency under its supervisory control or direction. (A.Y. 2002-03 & 2003-04)
Taurus Merchandising (P) Ltd. v. ITO (2012) 138 ITD 204 (Delhi)(Trib.)

S. 11: Charitable or religious purposes – Principal objects was promotion of vegetarianism and distribution of Prasad – Preparing and selling vegetarian food held to be incidental to object of assessee trust
Assessee was a charitable trust and its principal objects included promotion of vegetarianism and distribution of Prasad. The AO finding that assessee was in business of running an eating house/restaurant, took a view that entire character and focus of assessee had become totally commercial. Since the promotion of vegetarianism is undoubtedly a charitable activity, business of preparing vegetarian food items and selling same was very much incidental to object of assessee trust and such business could be conducted by a charitable trust as per provisions of section 11(4). Thus, assessee’s claim for exemption was to be allowed. (AY 2008-09)
ADIT(Exemption) v. Sri Sri Radha Damodar Charitable Trust (2012) 52 SOT 622 (Mum)(Trib.)

S. 13: Trust or institution- Exemption – Land used for society belonging to wife of secretary ,exemption not be denied when no benefit passed.(S.11,12AA)
Assessee society registered u/s 12AA was functioning from land belonging to wife of secretary of assessee society. It had incurred expenditure on construction of building on said land. It was apparent from records that land was taken on lease for period of 30 years with renewable option and, thus, no benefit was passed to secretary’s wife. Moreover, there was an option that in case assessee did not want extension of lease, it could remove superstructure erected on leased land. Thus, it was held that impugned order passed by Assessing Officer denying exemption was not sustainable. (A.Y. 2006-07 & 2007-08)
Addl. CIT v. N.L. Education Society (2012) 52 SOT 603 (Agra)(Trib.) 

S. 14A:Expenditure disallowance – Exempt income – No exempt income earned during the year, no disallowance can be made.
No disallowance can be made (i) in the absence of any exempt income earned during the year; or (ii) if investment is also capable of generating taxable income. (A.Y. 2003-04 & 2004-05)
Avshesh Merantile P. Ltd. & Others v. DCIT, ITAT ‘F’ Bench, Mumbai, ITA No. 5779, 5780/Mum./2006, dated 13-06-2012, BCAJ Pg. 33, Vol. 44-A Part 6, September 2012.(Mum.)(Trib.)

S.14A:Expenditure disallowance-Exempt income- Stock in trade- Disallowance under section 14A  cannot be made in respect of shares held as stock in trade. The view of Mumbai Tribunal  which held  that  section 14A applies to shares held as stock-in-trade was not followed.
The assessee relying on CIT v Leena Ramachandran(Smt.)(2011)  339 ITR 296 (Ker) & CCL Ltd v JCIT (2012) 250 CTR 291 (Karn), claimed  that as the shares were held as stock-in-trade, s. 14A did not apply. The department opposed this plea by relying on American Express Bank [ITA No. 5904/M/2000 dt. 8/8/2012 (Mum.)(Trib.)] where the view was taken, after considering Leela Ramchandran & Daga Capital Management (2009  )117 ITD 169 (Mum) (SB), that s. 14A applied even to a trader in shares. Held by the Tribunal:
 Though in American Express Bank (supra), the Tribunal followed ITO v Daga Capital Management (P) Ltd. ( 2009) 117 ITD 169(SB)(Mum)  & distinguished CIT v Leena Ramachandran(Smt.)(2011) 339 ITR 296 (Ker) & held that s. 14A applies also to a trader in shares, the Karnataka High Court has held in CCL Ltd  v JCIT (2012) 250 CTR 291 that disallowance of expenses incurred on borrowings made for purchase of trading shares cannot be made u/s.14A. As this is a direct judgment of a High Court on the issue, the same has to be followed in preference to the decision of the Special Bench of the Tribunal in Daga Capital Management (or that in American Express Bank) & it has to be held that disallowance of interest in relation to the dividend received from trading shares cannot be made (Ganjam Trading Co (included in file) & Yatish Trading Co. v ACIT ( 2011)  129 ITD 237 followed).(A. Y. 2008-2009)
DCIT v. India Advantage Securities Ltd ( Mum.)(Trib.) www.itatonline.org

S.14A:Expenditure disallowance- Nexus- Expenditure-Tax free income-Disallowance under section 14A cannot be made  in absence of “live nexus” between expenditure & tax-free income.
The assessee earned tax-free income from shares and units and claimed that he had not incurred any expenditure on earning the tax-free income and so no disallowance u/s 14A was permissible. The AO & CIT(A) rejected the claim and disallowed Rs. 2.26 lakhs u/s 14A as expenditure incurred to earn the tax-free income. On appeal by the assessee to the Tribunal, it was held that  S. 14A has within it implicit notion of apportionment in cases where expenditure is incurred for composite/indivisible activities in which taxable and non-taxable income is received. But when it is possible to determine the actual expenditure in relation to exempt income or when no expenditure has been incurred in relation to exempt income, then the principle of apportionment embedded in s. 14 A has no application. For s. 14A to apply, there should be a proximate relationship between the expenditure and the tax-free income. If the assessee claims that no expenditure has been incurred for earning the exempt income, it is for the AO to determine as to whether the assessee had incurred any expenditure in relation to the tax-free income and, if so, to quantify the extent of disallowance. In order to disallow the expenditure u/s 14A, there must be a live nexus between the expenditure incurred and the income not forming part of total income. No notional expenditure can be apportioned for the purpose of earning exempt income unless there is an actual expenditure in relation to earning the tax-free income. If the expenditure is incurred with a view to earn taxable income and there is apparent dominant and immediate connection between the expenditure incurred and taxable income, then no disallowance can be made u/s 14A merely because some tax exempt income is received by the assessee. On facts, from the details of the expenditure, it is clear that the expenditure incurred by the assessee has direct nexus with the professional income of the assessee. It is not the case of the revenue that the assessee has used his official machinery and establishment for earning the exempt income. The AO has not given any finding that any of the expenditure incurred and claimed by the assessee is attributable for earning the exempt income. Consequently, s. 14A disallowance is not permissible (Pawan Kumar Parmeshwarlal (ITAT Mumbai) & Auchtel Products (ITAT Mumbai) followed).(A. Y. 2006-07)
Justice Sam P Bharucha v. ACIT ( Mum)(Trib.)www.itatonline.org

S.14A:Expenditure disallowance – Exempt income- Investment in shares of companies and units of mutual funds out of interest free funds available and not out of borrowed funds, hence, no disallowance u/r 8D (2)(ii)
The assessee had made investment in shares of companies and units of mutual funds out of interest free funds available with it and there was nothing on record to show that said investment was made out of borrowed funds, no disallowance could be made by invoking rule 8D (2)(ii). (AY 2008-09) 
ACIT v. Mohan Exports (P.) Ltd. (2012) 138 ITD 108 (Delhi) (Trib.)
  
S.15: Salaries -Perquisite- Reimbursement of tax- Perquisite-Resident but not ordinary resident-“Hypothetical Tax” of expatriate employee is not assessable as income
The assessee, a resident but not ordinarily resident individual, was an employee of Coca-Cola Inc USA and had income under the head “Salaries”. Under the Tax Equalization Policy framed by the said company, the assessee was guaranteed net of tax salary and the company was to bear all actual taxes imposed on the employee’s assignment income. The employee had to reimburse the company that part of his total tax liability which he would have paid had he worked in Atlanta. This was known as the “Theoretical Tax Liability”. The assessee claimed that as the company was liable for the amount in excess of the theoretical tax liability, it was proper to net the company’s tax reimbursement with the employee’s contribution towards that reimbursement. It was claimed that the hypothetical tax had to be reduced and that only the actual tax borne by the employer should be treated as a perquisite. In AY 1994-95, the assessee received Rs. 77 lakhs on which the tax liability was Rs. 35 lakhs which was to be reimbursed by the employer. The total salary income was consequently Rs. 112 lakhs on which the actual salary paid was Rs. 50 lakhs. The assessee added Rs. 50 lakhs to its income and deducted Rs. 15 lakhs (Rs. 50 – 35 lakhs) on the ground that it was the “hypothetical tax” that he was liable to reimburse to the company. The AO & CIT(A) rejected the claim though the Tribunal (order attached) upheld it on the ground that as, out of the total tax liability of Rs.50 lakhs, the company would reimburse Rs.35.00 lakhs and Rs.15.00 lakhs would be borne by the assessee out of his salary of Rs.77.00 lakhs, the assessee’s taxable Income could not be more than Rs.112.00 Lakhs (77 + 35) on which the assessee had paid full tax of Rs.50.00 lakhs. On appeal by the department to the High Court, Held dismissing the appeal:
 The total salary received by the assessee in India was Rs.77.00 lakhs on which the tax payable at the maximum rate of 44.8% comes to Rs.35.00 lakhs. Since the assessee under the Tax Equalization Policy was entitled to get reimbursement of the tax payable on the amount of Rs.77.00 lakhs, his salary income was Rs.113.00 lakhs (Rs.77.00 lacs plus Rs.35.00 lacs). Though the assessee paid tax of Rs.50.00 lakhs, he was entitled to reimbursement of tax amounting to Rs.35.00 lakhs and the balance Rs.15.00 lakhs was borne out of the salary income received by the assessee in India. The confusion had arisen because the assessee in his computation had added Rs.50.00 lakhs as income and deducted Rs.15.00 lakhs from the income, when in fact the said amount of Rs.15.00 lakhs was not received from the company but paid out of the salary amount received in India. In other words, though the assessee had paid tax of Rs.50.00 lakhs, since the assessee was entitled to reimbursement of Rs.35.00 lakhs from the Company, the salary income (Rs.77.00 lakhs) received by the assessee had to be enhanced by Rs.35.00 lakhs only and not by the balance Rs.15.00 lakhs which is paid by the assesses from the salary income. Accordingly, the tax of Rs.15.00 lakhs paid by the assessee from the salary income (not reimbursed by the company) could not be added to the assessee’s income.(A.Y.1994-95)
CIT v. Jaydev H. Raja (Bom.)( High Court)www.itatonline.org

S.17:Salaries-Perquisite-Expenditure on repair of residential accommodation occupied by employee – Rule 3
Express provision of Rule 3 which elaborates various contingencies in relation to perquisite of rent-free accommodation rules out the intention of the parliament to treat expenses in relation to improvement, repairs or renovations as falling within the meaning of ‘perquisite’. Argument of the Revenue that the repairs and renovation expenses constituted an obligation of the employee, which was borne by his employer, is meritless. Lease deed nowhere spells out any obligation on the employee to carry out repairs and renovations. Section 17(2)(iv) cannot be made applicable. If the A.O. had returned a finding that the premises were to be valued at market value (of the rental), in case it increased as a result of the renovations, the only prescribed mode was to ally the method indicated by Rule 3(a)(iii)
Scott R. Bayman v. CIT (2012) 76 DTR 113 (Delhi)(High Court)

S.22:Income from house property-Business income–Tests on when rental income is assessable as "house property income" vs. "business profits".(S.56 )
U/s 22, income from the rental of building or land appurtenant thereto is assessable as “Income from house property”. However, where complex and varied services are provided and huge investment in the nature of plant and machinery is made, the income is assessable as “Profits & gains of business”. On facts, the assessee had conducted systematic activity and rendered extensive and specialized services which could only be utilised by the IT/Software/BPOs businesses to be located in the I.T. Park. Such income cannot be treated as forming part of income from house property but is a constitution of organized structure for carrying out business activities to earn profit and accordingly the income is assessable as income from business.
DCITv.Magarpatta Township Development & Construction Co (Pune)(Trib.)www.itatonline.org

 S.28(i):Business income – Settlement money to competitor to end legal dispute – Not payment for loss of source of income or for entering into negative covenants -No transfer of right, hence revenue was a business income
The assessee was a company carrying on business in joint venture with foreign company. A foreign company incorporated a wholly owned subsidiary company in India to carry on competing business of manufacturing electric equipments. The assessee entered into settlement to settle all legal disputes between parties. It was held that it was not payment for loss of source of income or for entering into negative covenants. There was no transfer of right, hence revenue was a business income. (A.Y. 2004-05)
Control and Switchgear Contractors Ltd. v. Dy.CIT (2012) 18 ITR 520 (Delhi)(Trib.) 

S. 28(i): Business loss – deduction – Purchase of goods, showed as closing stock – Disallowance deleted
The assessee imported insulated craft paper. The same were available in bonded warehouse. The assessee recorded purchase of goods and showed it in closing stock. The AO disallowed the deduction claimed on the ground that assessee had neither taken physical delivery of purchased goods nor it furnished any evidence to support that the same had been included in closing stock or sales. On appeal, the addition was deleted as the details of raw material showed that sum pertaining to insulated paper had been included in imported stock. The assessee further informed that the concerned stock was accounted for in closing stock . (A.Y. 2006-07)
ITO v. Shakti Insulated Wires (P.) Ltd. (2012) 53 SOT 64 (Mum.) (Trib.)

 S.28(iv):Business income – Goodwill – Date of Merger – Excess of cost of acquisition over the carrying value of net assets appearing in accounts of amalgamated company, not income. 
Amount of goodwill representing the excess of cost of acquisition over the carrying value of net assets as on the date of merger appearing in the accounts of the amalgamated company cannot be treated as income taxable u/s 28(iv). (A.Y. 2002-03, 2003-04, 2006-07 & 2007-08)
Quintegra Solutions P. Ltd. v. ITO (2012) 148 TTJ 471 (Chennai)(Trib.) 
 
S.32: Depreciation- Rate – Motor cars – commercial vehicles-Light motor vehicles-Depreciation at 50%.
As per note 6 below part A of Appendix I, cards are light motor vehicles and thus commercial vehicles, Assessee was therefore entitled to 50 per cent depreciation on motor cars and not 20 per cent as allowed by AO. (A.Y. 2003-04)
CIT v. Birla Global Asset Finance Ltd. (2012) 76 DTR 342 (Bom.)(High Court)  

S.32:Depreciation-Quantification – Applicability of second proviso to S.32(1)
Second proviso to s. 32(1) is applicable only in the year in which the asset is acquired or put to use for the business for the first time and, therefore, assessee’s claim for depreciation qua assets acquired and put to use prior to the commencement of the current year is wholly allowable, more so as the assets were in use from 1st April, 2001 to 28th Sept. 2001, i.e. for a period of 181 days in the current year before the suspension of assessee’s operations by RBI on 29th Sept. 2011; however, assessee’s claim for depreciation to the extent it relates to assets acquired during the current year is subject to second proviso to S. 32(1). (A.Y. 2002-03)
Vinayak Local Area Bank Ltd v. Dy. CIT (2012) 76 DTR 129 / 149 TTJ 261 (Jaipur) (Trib.)

S. 32: Depreciation – Rate – mistakenly understated – Held rectification letter filed to AO rectifying the rate of depreciation was to be allowed.
The assessee installed wind-mill and claimed depreciation @ 15% on written down value basis. However, realizing the wrong rate, assessee filed a letter to rectify the rate @ 80%. It was held that since assessee had made a claim for statutory allowance of depreciation on WDV basis, subject to mistake occurred in choosing correct rate, rectification letter filed by it was to be allowed. (A.Y. 2007-08)
ITO v. Sri Balaji Sago & Starch Products (2012) 53 SOT 15 (Chennai)(Trib.)

S.36(1)(iii):Deductions-Interest on borrowed capital-Interest free advances to sister concerns.
Facts regarding borrowings made immediately before the loans to subsidiaries were granted noticed by the AO would establish a direct nexus with the borrowings made by the assessee and loans granted by the assessee. If interest free loans were not made, then at least to the extent the assessee need not have borrowed from other entities. Borrowals purportedly made for meeting the day to day needs of business, to that extent could have been met from internal resources itself. Such funds then cannot be taken to be having been used for or invested in the business. To that extent there cannot be any claim for business expenditure. (A.Y. 1992 – 93)
CIT v. Harrisons Malayalam Ltd (2012) 76 DTR 335 (Ker.)(High Court)

S.36(1)(iii):Deductions- Interest on borrowed capital – Funds advanced to sister concern out of business exigencies – Not in nature of personal diversion, hence to be allowed. 
Assessee as well as its sister concern being engaged in the same field of business, and the assessee having advanced funds to the sister concern out of business exigenicies, it cannot be said to be in the nature of personal diversion of funds and therefore, interest on borrowings could not be disallowed. (A.Y. 2002-03, 2003-04, 2006-07 & 2007-08)
Quintegra Solutions P. Ltd. v. ITO (2012) 148 TTJ 471 (Chennai)(Trib.) 
 
S.36(1)(viia):Deductions-Bad debt qua sub-standard assets of banking company
Licence of the assessee, a banking company, having been suspended by the RBI vide order dt. 29th Sept. 2011, the case clearly falls under s. 36A(1)(b) of the Banking Regulation Act, 1949-Assessee company was obliged  to classify its assets according to RBI norms as any other non scheduled bank irrespective of the fact that its banking licence stood cancelled by the RBI prior to 31st March, 2002.  Therefore, assessees claim for deduction u/s. 36(1)(viia) in respect of sub standard assets is allowed to the extent it relates to loss or doubtful assets as per the RBI norms and is otherwise consistent with the provisions of s. 36(1)(viia), subject to the confirmation that the notification u/s. 36A(2) of the Banking Regulation Act was made on 21st Sept 2002, i.e, subsequent to 31st March, 2002.  Merely because it was not able to canvass the legal basis of its claim before the authorities below would not preclude the assessee from doing so before the Tribunal . Contention of the assessee based on the provisions of the applicable law cannot be considered as a new plea, thus matter is restored back to the AO for verification and appropriate findings in accordance with law. (A.Y. 2002-03)
Vinayak Local Area Bank Ltd v. Dy. CIT (2012) 76 DTR 129 / 149 TTJ 261 (Jaipur) (Trib.)

S. 37(1): Business expenditure –Compensation- Amount paid in terms of settlement  is  not in nature of penalty hence deductible.
The assessee was manufacturing environmental control system. It had been exporting its products to a firm in Canada, S, a company in the USA filed a suit against the Canadian company. The Canadian company settled the dispute and paid compensation to the American company. The American company sued the assessee. Since the cost of litigation was expected to be exorbitant, the assessee after considering the advice of its legal representative, settled the dispute by making payment of US $ 6,75,000. This amount was claimed as business expenditure. The Assessing Officer rejected the claim but the Tribunal allowed it. On appeal to the High Court: it was held, dismissing the appeal, that no finding had been given by any court that the assessee had violated the patent right of the American company. The payment under the settlement was compensatory in nature.(A.Y. 2005-06)
CIT v. Desiccant Rotors International P. Ltd (2012) 347 ITR 32 (Delhi)(High Court)

S.37(1):Business expenditure- Keyman Insurance Policy-Firm-Partner –Allowable as business expenditure.(S.10(10D)
Partner  comes within the purview of the person who is “connected with in any manner whatsoever with the business” of the firm within the meaning of explanation to s. 10(10D),hence the premium paid by assessee firm for Keyman insurance policy of partner such premium is allowable business expenditure u/s. 37(1)   
CIT v. Gem Art (2012) 76 DTR 374 /252 CTR 451(Guj.)(High Court)

S. 37(1):Business expenditure- Capital or revenue- Non compete fees paid was held to be capital expenditure.(S. 32(1)(ii))
Assessee purchasing business as a going concern, non-compete fee paid as a part of consideration is capital expenditure, hence not deductible; Tribunal rightly remanded the matter to A.O. to consider whether depreciation thereupon is to be allowed or not u/s 32(1)(ii). (A.Y. 2005-06)
Pitney Bowes India (P) Ltd. v. CIT (2012) 76 DTR 34 (Delhi)(High Court)

S. 37(1):Business expenditure- Capital or revenue- Enhanced lease rentals, and relinquishment of right  was revenue expenditure .Non compete fees within specified area was capital expenditure.
Enhanced lease rent paid by the assessee company to the extent it is attributable to the expenditure incurred by the lessor trust on modernization and improvement of the plant and machinery which has been taken on lease and to normal appreciation in the lease rentals prevailing in the market would be revenue expenditure;

Relinquishment of the right to purchase Khairwood from State Government by the lessor-trust in favour of the assessee resulted in better availability of raw material at a cheaper price to the assessee and not acquisition of the source of raw material itself and, therefore, part of the enhanced lease rent which is attributable to the right to purchase Khairwood is also revenue expenditure.

Lessor-trust having agreed not to compete with the assessee’s business within a specified area after leasing out whole of its production unit to the assessee, the benefits which accrued to the assessee company on account of elimination of competition from the trust were of enduring nature and hence, increase in lease rent, to the extent it is attributable to this benefit, is a capital expenditure. (A.Y. 1992 – 93 to 2003-04 & 2007-08)
Shanker Trading (P) Ltd. v. CIT (2012) 76 DTR 40 (Delhi)(High Court)
S.37(1): Business  expenditure – Penalty – Stock exchange allowable as deduction explanation to section 37 was held not applicable.
The following question of law raised by the revenue before High Court.
“(C) Whether on the facts and in the circumstances of the case and in law the Hon’ble Tribunal was justified in deleting the disallowance made by the Assessing officer of claim of the Assessing company for a deduction of payment of Rs. 6,51,240/- towards penalty paid to Stock Exchange even though such penalty payment was clearly disallowable under Explanation to Section 37(1) of the Income tax Act?”
The Court held that as regards question (C) is concerned the finding of fact recorded by the ITAT is that the amount paid as penalty was on account of irregularities committed by the assessee’s clients. Such payments were not on account of any infraction of law and hence allowable as business expenditure. In such a case the explanation to section 37 would not apply. Accordingly question (C) raised by the Revenue cannot be entertained.
The Income Tax CommissionerMumbaiCity  v. Angel Capital & Debit Market Ltd. ITA (L) NO. 475 of 2011, dt. 28/07/2011 (Bom.)(High Court) (unreported)    
Editorial Note:   ITA No. 5560/M/2009, A.Y. 2006-07, Bench “D” Dated 29/10/2010 DCIT v. Angel Capital & Debit Market Ltd.

S.37(1):Business  expenditure- Capital or revenue expenditure – Expenditure on renovation of leasehold office premises was held revenue expenditure-Compensation held as capital in nature.  
Amount  spent by the assessee for the renovation of the leasehold office premises is allowable as a revenue expenditure but the amount paid by the assessee to the lessor as compensation to put up a structure or alter the structure to suit the requirements of the assessee is not a revenue expenditure. Further, assessee cannot also claim benefit of depreciation in respect of the latter amount as it is not the assessee who has put up the construction and spent the amount thereon.(A.Y.1997-98)
CIT v. Lucent Technologies Hindustan Ltd. (2012) 252 CTR 438(Karn.) (High Court)
Editorial. Lucent Technologies Hindustan Ltd V. Jt.CIT (2007) 106 TTJ 205 (Bang.)(Trib.) partly affirmed.
S.37(1): Business expenditure – Construction of commercial  centre on plot in violation of master plan – Misuse charges  allowed as deduction.
The assessee constructed commercial centre on plots in violation of master plan. It was held that misuse charges paid by the assessee for the same not allowed as deduction. (A.Y. 2008-09)
ACIT v. Mohan Exports (P.) Ltd. (2012) 138 ITD 108 (Delhi) (Trib.)
 
S.40(a)(i)(a): Amount not deductible – VSAT and Lease Line charges – Payment made to Stock Exchange  was not for technical services hence provisions of S. 194J r.w.s. Explanation 2 of  S. 9(1)(vii) is not applicable. The assessee  was  not liable to deduct Tax at Source. (S.9(1)(vii), 194J)
The following two questions were raised before the High Court by the revenue:
“(A) Whether on the facts and in the circumstances of the case and in law the Hon’ble was justified in holding the VSAT and Lease Line charges paid to the Stock Exchange by the Assessee Company were allowable as a deduction from taxable Income even though the Assessee Company had failed to deduct TDS thereon? 

(B)  Whether on the facts and in the circumstances of the case and in law the Hon’ble Tribunal was justified in holding that VSAT and Lease Line charges paid to the Stock Exchange by the Assessee Company were not paid in consideration of technical services rendered by the Stock Exchange within the meaning of Section 194J read with Explanation 2 to Section 9(1)(vii) of the Income tax Act.?”

The Court held that as regards first two questions are concerned, the findings of fact recorded by the ITAT is that VSAT and Lease Line charges paid by the assessee to Stock Exchange were merely reimbursement of the charges paid / payable by the Stock Exchange to the Department of Telecommunication. Since the VSAT and Lease Line charges paid by the assessee do not have any element of income, deducting tax while making such payments do not arise. Hence, question Nos. (A) and (B) cannot be entertained.    
The Income Tax CommissionerMumbaiCity  v. Angel Capital & Debit Market Ltd. ITA (L) NO. 475 of 2011, dt. 28/07/2011 (Bom.)(High Court) (unreported)   
Editorial Note:   ITA No. 5560/M/2009, A.Y. 2006-07, Bench “D” Dated 29/10/2010 DCIT v. Angel Capital & Debit Market Ltd.
S.40(b):Amounts not deductible- Firm -Commission to partners- Partnership deed did not provide for payment of any commission to partners in view of non obstinate clause contained under section 40(b), of the Act, any remuneration paid to partner in whatever manner , is not deductible as an expenditure under section 37(1).(S. 37(1) 
The assessee was a partnership firm. Two persons possessed Certificate of Diploma in Pharmacy. To carry on the business of drugs at least one person had to be qualified for selling the drugs. The firm paid commission to the aforesaid two partners, in their individual capacities for the services rendered by them by virtue of the specialized qualification they possessed. The Assessing Officer held that said amount could not be allowed as deduction at the hands of the firm in view of sec. 40(b).
           
It was held that a partner is not entitled to receive remuneration for taking part in the conduct of the business u/s. 13 of the Partnership Act. This rule is subject to the contract to the contrary. In other words, if there is a contract between partners to receive remuneration for taking part in the conduct of the business, this rule is not applicable. Sec. 40(b) recognizes this rule. It provides for making payment to a partner subject to the condition mentioned therein being fulfilled. The said conditions are:

1. The partnership deed i.e. contract between the parties should provide for such payment.
2. The person to whom it is paid should be a working partner.
3. Such payment should be within the limits prescribed in sec. 40(b)(v). (para 12)

Therefore, any payment made to a partner if it is to be eligible for deduction u/s. 37 of the Act, should satisfy the aforesaid requirements. Otherwise, the amount paid to such partner cannot be deducted as expenditure u/s 37.
Dr. Bidari Ashwini Hospital v. ITO, Ward 1, Bijapur (2012) 209 Taxman 303 (Karn.)(High Court)
 
S.40A(2):Expenses or payments not deductible- Trust- Payments made to trust provisions of section 40A(2) was not attracted.
The Trust is neither a company, nor firm, nor HUF, nor an AOP within the meaning of cl.(v) of S.40A(2)(b) and therefore, the provision of S.40A(2) is not attracted to the payments of lease rent by the assessee company (lease) to the lessor-trust even though the company is owned and controlled by the trustees of the trust and their family members. (A.Y. 1994 – 95 to 1999-2000, 2004-05, 2005-06 & 2007-08)
Shanker Trading (P) Ltd. v. CIT (2012) 76 DTR 40 (Delhi)(High Court)

S.40A(3): Expenses or payments not deductible- Cash payments exceeding prescribed limits.
Amended provisions of S. 40A(3) and 40A(3A) are applicable in respect of those expenditure for which liability has been incurred in A.Y. 2008-09 or in any subsequent year but it cannot be made applicable to the liability incurred upto the A.Y. 2007-08. (A.Y. 2008-09)
Anandkumar Rawatram Joshi v. ITO (2012) 76 DTR 82 (Ahd.)(Trib.)

S.40A(3): Expenses or payments not deductible- Cash payments exceeding prescribed limits-
If the liability for an expense is incurred upto A.Y. 2007-08 and the payment is made in a subsequent year i.e. 2008-09 the provisions of S.40A(3) as applicable in the year in which liability was incurred should be applied. Payment by a crossed cheque in A.Y. 2008-09 in respect of liability of A.Y. 2004-05 could not be disallowed in A.Y. 2008-09 by applying amended provisions of S.40A(3). (A.Y. 2008-09)
Tushar A. Sanghvi (HUF) v. ITO (2012) 76 DTR 90 / 149 TTJ 205 (Ahd.)(Trib.)

S.43B: Deductions on actual payment-  SEBI Registration fee paid under scheme of settlement, liability accrued in year 2011 discharged in year 2004 held deductible.
Under the Securities and Exchange Board of India (Interest Liability Regularisation) Scheme, 2004, all the brokers of the BSE and the NSE were required to pay turnover fees at a prescribed rate for an initial period of five years. The brokers went to the court to get relief and the mater went to the Supreme Court which upheld the Scheme of the SEBI, holding the fees reasonable and valid. As a result thereof, the SEBI formulated a scheme of one time settlement which brokers could avail of if they paid the registration fee on the annual turnover fees along with 20 per cent of the total interest before a specified date, i.e, November 15, 2004. The assessee opted for the one time settlement and paid the amount. The Assessing Officer held that by making the payment in 2004, the assessee discharged its liability in the year 2004 though it accrued in the year 2001. The Assessing Officer allowed Rs.10,14,847 which represented the payment of the current year’s liability. The Tribunal held that the entire amount was deductible. On appeal by the department, the High Court held dismissing the appeal, that the Tribunal was correct in law in allowing deduction of Rs.3,84,01,630/- to the assessee being the SEBI registration fees.
CIT v. BLB Ltd. (2012) 347 ITR 139 (Delhi) (High Court)

S. 43B:Dedcution on actual payment- Disallowance of expenditure on exempt income-DTAA- India- Mauritius- Section  43B & s. 14A disallowance can be made under Article 7(3) of the India-Mauritius DTAA [S.14A,Article 7(3)]
The Tribunal had to consider two issues: Whether in view of Article 7(3) of the India-Mauritius DTAA, a disallowance u/s 43B and s. 14A was permissible while computing the assessee’s income. Held by the Tribunal:
(i) Article 7(3) of the India-Mauritius DTAA provides that “in determining the profits of a permanent establishment, there shall be allowed as deductions expenses which are incurred for the purposes of the business of the permanent establishment including executive and general administrative expenses so incurred, whether in the State in which the permanent establishment is situated or elsewhere“. This is in contrast to the other DTAAs (e.g. India-USA DTAA) which provide that the deduction shall be “in accordance with the provisions of and subject to the limitations of the taxation laws of that State”. As there is no limitation, the result is that all expenses incurred for the purpose of business of the permanent establishment have to be allowed as deduction and no disallowance u/s 43B can be made. Neither Article 3(2) nor Article 23(1) make any difference to this interpretation;
(ii)        However, the position with regard to s. 14A is different because unlike other disallowance provisions which disallow deductible expenditure, s. 14A contains a fundamental principle that any expenditure incurred in relation to an income not includible in total income, shall not be allowed as deduction. S. 14A, at the very threshold itself, snatches away the deductibility of expenses incurred in relation to an exempt income. It is not a case that the expenses are otherwise deductible but have become non-deductible due to the operation of s. 14A. Rather, the expenses do not qualify for deduction at the very first instance in accordance with the principle that if an item of income is not chargeable under the Act, the related expenditure has to be ignored. (A.Y. 1999-2000)
State Bank of Mauritius Limited v. DDIT ( Mum.)(Trib).www.itatonline.org)

S. 43B:Dedcution on actual payment- Service Tax – If liability to pay service tax does not exist, service tax cannot be said to be payable.
Rigor of S. 43B cannot be made applicable to service tax as firstly, service provider is never allowed deduction on account of service tax which is collected by it on behalf of government and is paid to government accordingly and secondly, liability to payment arises only after service provider has received payments and if there is no liability to make payments to credit of government because of non receipt of payment from receivers of service, it cannot be said that such service tax has become payable. (A.Y. 2007-08)
Pharma search v. ACIT (2012) 53 SOT 1 (Mum.) ( Trib.)

 S.44BB:Mineral oils-Turnkey project- Installation of plat form outside India- Even a “Turnkey” contract has to be split into various components- The work of installation of the platform done inside India does not fall u/s 44BB because the activity cannot be regarded as a “facility in connection with the prospecting for, of extraction or production of, mineral oils.
The assessee entered into a contract with ONGC for fabrication and installation of on-shore and off-shore oil facilities and pipelines. The assessee claimed that though the contract was one, it had to be sub-dividend into two parts, one for designing, fabrication and supply of material and the other for installation and commissioning of the project. It was claimed that the work relating to the former was carried out exclusively in Abu Dhabi and hence no income relating to receipts for that part of the contract was liable to tax in India as the there was no PE in India. The AO & DRP rejected the claim on the basis that (a) the contract was a “turnkey” one where the entire risk of completion & commissioning was on the assessee & it was not divisible into different components, (b) the assessee had a project office in India which was a PE, (c) the assessee had a Dependent Agent PE, (d) there was a “construction and installation PE” under Article 5(2)(h) & (e) ownership of the equipment transferred to ONGC only after issue of the certificate of acceptance of the entire work. It was also held that s. 44BB was not applicable and the profit was estimated at 25% of gross receipts. On appeal by the assessee to the Tribunal Held:

(i) The assessee’s project office in India constituted a PE. It also had a “Dependent Agent PE” and also a “construction and installation PE” under Article 5(2)(h);

(ii) However, though the contract was on a “turnkey” basis, it had to be regarded as an “umbrella contract” and as being a divisible contract because the consideration for various activities has been stated separately. Also, ONGC had the discretion to take only the platform erected by the assessee in Abu Dhabi without having installation thereof. The segregation of the contract revenues into offshore and onshore activities was made at the stage of awarding the contract. The total consideration was earmarked towards different activities and separate payment had to be made on the basis of work of design, engineering, procurement and fabrication. These operations had been carried out and completed outside India. The PE was in respect of the installation and commissioning work done in India and the activities carried outside India were not attributable to the said PE (Hyundai Heavy Industries 291 ITR 482 (SC), Ishikawajma-Harima Heavy Industries 288 ITR 408 (SC) & DCIT v Roxon OY (2006) 103 TTJ 891 (Mum) followed);

(iii) The work of installation of the platform done inside India does not fall u/s 44BB because the activity cannot be regarded as a “facility in connection with the prospecting for, of extraction or production of, mineral oils”. (A. Y. 2007-2008)
National Petroleum Construction Company v. ADIT ( Delhi)(Trib.)www.itatonline.org
 
S. 44C:Non-residents-Head office expenditure- Laboratory expenses held to be fully allowable.
Laboratory expenditure incurred by the Head office for Research and Development, which was attributable to the Indian branch was fully allowable and was not subject to the restriction in section 44C. (A.Y. 1981-82 & 1982-83)
John Wyeth & Brother Limited v. ACIT, Mumbai, ITA No.6772 & 6773/Mum/2002, dt. 25-07-2012, BCAJ Pg.36, Vol 44-A Part 6, September, 2012.(Mum.)(Trib.)

S. 45:Capital gains -Business income- – Purchase and sale of shares – Chartered Accountant- Amount assessable as capital gains and not  assessable as business income. [S. 28(i)]
In the accounting year relating to asst. year 2001-02, the assessee, a chartered accountant, had derived income from his profession and also from purchase and sale of shares shown as short term and long term capital gains and also interest. He had also shown income from speculation business. Though the assessee had purchased and sold other shares and units of mutual funds, this solitary transaction had been disputed by the Assessing Officer mainly because the assessee had purchased the shares from borrowed funds obtained at a high rate of interest. Another reason for holding that the transaction was an adventure in the nature of trade or business was that the shares were held by M till the entire loan was paid and were initially purchased in the name of M in terms of the agreement between the assessee and M. According to the Assessing Officer, since the assessee had not obtained physical possession of the shares at the relevant time, the assessee was not the owner of the shares.  The Commissioner (Appeals) treated the receipt as capital gains and deleted the disallowance of interest. The Tribunal upheld the order. The High Court dismissing the both the Tribunal as well as Commissioner (Appeals) had recorded concurrent findings of fact to the effect that the assessee had disposed of most of the shares held by him after more than a year or two; the investment made in the shares of H was not very high; the assessee had not repeated the transactions of purchase and sale of shares of H, the assessee had not shown the shares as stock in trade; after the shares were sold, the assessee made investments under the provisions of sec. 54EC in the bonds of NABARD,  and the profit of purchase and sale of shares or investment in mutual fund was always shown on capital account, that is, capital gains either short term or long term, and that the same was accepted as such in earlier years. The transaction did not amount to an adventure in the nature of trade. (A.Y. 2001-02)
CIT v. Niraj Amidhar Surti (2012) 347 ITR 149 (Guj.)(High Court)

S.45:Capital gains –Deeming fiction– Sale consideration accruing or arising or received in different years ,chargeable to tax in year which transfer takes place  -Transfer of share holdings through share purchase agreement. Merely because the agreement provides for payment of the balance of consideration upon the happening of certain events, it cannot be said that the income has not accrued in the year of transfer. Order of Tribunal was up held.(S.48 )   
The assessee had transferred his shareholding through a share purchase agreement dated 15-2-2006. The overall sale consideration was Rs.86.25 lakhs. However, in this year the assessee received only an amount of Rs.60 lakhs. The balance amount was to be received in three succeeding years subject to fulfilment of certain conditions. The assessee claimed that in the relevant assessment year only an amount of Rs.60 lakhs was liable to be considered for the purpose of levy of capital gains tax. The A.O. held that whole sale consideration of Rs.86.25 lakhs was subject to capital gains tax under section. 45.It was held that there was no material on the record or in the agreement suggesting that even if the entire consideration or part is not paid the title to the shares will revert to the seller. In that sense the controlling expression of `transfer’ in the instant case is conclusive as to the true nature of the transaction. The fact that the assessee adopted a mechanism in the agreement that the transferee would defer the payments would not in any manner detract from the chargeability when the shares were sold. The tenor of the Tribunal’s order is that the entire income by way of capital gains is chargeable to tax in the year in which the transfer took place. This is what is stated in sec. 45(1). Merely because the agreement provides for payment of the balance of consideration upon the happening of certain events, it cannot be said that the income has not accrued in the year of transfer. Order of  Tribunal was up held.(A.Y.2006-07) )
Ajay Guliya v. ACIT  (2012) 209 Taxman 295(Delhi) (High Court)
Editorial: Refer ACIT v. Ajay Guliya (2012) 138 ITD 134 (Delhi) (Trib.) It was held that in view of deeming fiction contained in sec. 45(1) whole of sale consideration accruing or arising or received in different years was chargeable under head `capital gains’ in year in which transfer of shares had taken place.

S.45: Capital gains- Distribution of tax free dividend- – "sham" transaction or "colourable device"- On facts, the transaction cannot be regarded as a "sham" or a "colourable device" because (a) the WOS had sufficient reserves and cash surplus for the distribution of dividend & (b) the WOS paid dividend distribution tax which was duly accepted in its assessment.
The assessee’s act of getting its’ wholly owned subsidiary (‘WOS’) to distribute tax-free dividend, and thereby reduce the FMV of the shares of the WOS, just prior to the sale of those shares, did result in a tax advantage to the assessee because it paid lower tax on capital gains. However, the transaction of dividend distribution by the WOS cannot be regarded as a "colourable device" or as an "impermissible tax avoidance scheme". A transaction can be regarded as a "sham" where "the document is not bona fide nor intended to be acted upon, but is only used as a cloak to conceal a different transaction" or where "it is intended to give to third parties the appearance of creating between the parties legal rights and obligations which are different from the actual legal rights and obligations which the parties intend to create". On facts, the transaction cannot be regarded as a "sham" or a "colourable device" because (a) the WOS had sufficient reserves and cash surplus for the distribution of dividend & (b) the WOS paid dividend distribution tax which was duly accepted in its assessment.(A. Y. 2006-2007)
ADIT v. Maersk Line UK Ltd (Kol.)(Trib)www.itatonline.org

S. 45: Capital gains – Loss on sale of share – Not related to business activity, hence capital loss not to be allowed.
Where loss on sale of shares was not in accordance with the business activity of the assessee, then the capital loss cannot be allowed. (A.Y. 2003-04, 2004-05 & 2006-07)
ACIT v. Lanco Infratech Ltd. (2012) 18 ITR 579 (Hyd.) (Trib.)

S.45:Capital gains – Short term capital asset – capital gain had to be computed on sale of flats and not on transfer of right of claim in flats [S. 2(42A, 48)]
Assessee owned a land since 1962. It entered into a development agreement on 21-2-2001 with a builder for a consideration of Rs.61 lakh and 55 per cent share in built up area. Assessee was given possession of flats on 24-2-2005. Assessee sold two flats on 10-4-2006 and 12-5-2006 and computed long term capital gain by taking holding period from date of agreement 21-2-2001. `Right of claim in flats’ as per agreement of 2001 was an `asset’,  assessee had not sold `right of claim in flats’ but had sold `flats’ of which he was owner. `Right of claim in flats’ no longer subsisted once assessee acquired flats and took possession of same on 24-2-2005. Therefore, capital gain had to be computed on sale of flats and not on transfer of right of claim in flats; and considering dates of possession of flats and sale therefore, gain on sale of flats was short term capital gain. Since assessee along with flats had also sold right of land as owner, which was an independent asset held since 1962, capital gain in respect of transfer of right of assessee in land had to be computed separately as long term capital gains. It would be reasonable to adopt a profit margin of 25 per cent on cost of construction of flats to arrive at sale consideration pertaining to flats and balance sale consideration of flats would be appropriated towards sale price for transfer of right in land. (AY 2007-08)
ACIT v. Jaimal K. Shah (2012) 137 ITD 376 (Mum.) (Trib.)

S.47(ii):Capital gains- Transaction not regarded as transfer-Dissolution of firm – The  amount received by a partner on dissolution of firm cannot be brought to tax as capital gains by virtue of s.47(ii).
Following the ratio of Bombay High Court in Prasant S. Joshi v.ITO(2010) 324 ITR 154 (Bom.)(High Court) which held that “During the subsistence of a partnership , a partner does not possess an interest in specific in any particular asset of the partnership. During the subsistence of a partnership , a partner has a right to obtain a share in profits. On a dissolution of a partnership or on upon retirement , a partner is entitled to a valuation of his share in the net assets of the amount paid to a partner upon retirement, after meeting the debts and liabilities .An amount paid by to a partner upon retirement , after taking accounts and upon deduction of liabilities does not involve an  element of transfer within the meaning of section 2(47).”   The Court accordingly held that the  amount received by a partner on dissolution of firm cannot be brought to tax as capital gains by virtue of s.47(ii). (A.Y.1978-79)
CIT v. Abid A. Kalvert (2012) 76 DTR 109 (Bom.)(High Court)

S.48:Capital gains-Computation- Fair market value -Sale consideration-Only sale consideration can be taxed and not the fair market value. [S.56(2)(vii)].
It is the sale consideration which is to be considered for purposes of computing capital gains and not the air market value .Even by introduction of s. 56(2)(vii) w.e.f. 1st Oct. 2009, it has not been provided that fair market value of the assets as contained in balance sheet of the company should be considered for ascertaining the value of the shares. Assessee held shares in BAPL which were sold to YCL @ Rs.100 per shares – According to the AO, the assessee sold shares in question to one TS Ltd at Rs.318 per share via YCL as a device to avoid tax . In the absence of any evidence that assessee received anything over and above stated consideration, no addition could be made by artificially relating the transaction to purchase of Plot by BAPL.Further, “share” sale is altogether a different transaction than “asset” sale holding period for purposes of long term capital gains in case of shares is one year while in case of assets it is three years similar sale of shares has been assessed as long term capital gains in the hands of other assessed while it is being treated as short term capital gain in the hands of assessee . There is nothing on record with the company which purchased the shares from the assessee company and has passed on money from TS Ltd. to the assessee .Therefore, there was no case of increasing the capital gain when there is no iota of evidence to suggest that the assessee has received consideration over and above  the consideration received. (A.Y. 2007-2008)
Singhal Credit Management Ltd v. ACIT (2012) 76 DTR 169 (Jaipur) (Trib.)
Singhal Securities (P) Ltd  v. ACIT(2012) 76 DTR 169(Jaipur)(Trib.)
SNR Rubbers (P) Ltd  v. ACIT(2012) 76 DTR 169(Jaipur)(Trib.)

S. 48: Capital gains –Computation- Initial public offer – Pre issue expenses borne by promoter and company proportionately – Deduction allowed for expenses necessarily incurred in connection with sale of such shares.
The assessee were promoter directors in company R which had gone for initial public offering (IPO) of its shares during the PY. Assessee sold their respective shares in ‘R’ as part of IPO. The pre-issue expenses were borne by ‘R’ and assessee proportionately.  It was held that when prospectus itself mentioned that issue expenses were to be borne proportionately by company and selling shareholders, it could not be considered that such expenses were not incurred for purpose of selling shares. Thus, expenses having being incurred for IPO through which assessee were also able to sell their shares, expenses necessarily in connection with sale of such shares and, therefore deduction claimed by assessee was to be allowed. (A.Y. 2007-08)
 Usharani Raghunathan(Mrs) v. CIT (2012) 53 SOT 84 (Chennai)(Trib.)  

S. 50C: Capital gains – Full value of consideration- Stamp valuation – No notice is  required to invoke provisions of the said section.
In the instant  case, it was held that there was no requirement under the Act for AO to put the assessee on notice before invoking the provisions of section  50C. Further it was also held that where assessee had objected to action of AO in adopting guideline value of property in place of stated consideration in sale deed, AO ought to make a reference to Valuation Officer for valuation of property as per S. 50C(2)(a). (A.Y. 2008-09) 
 T.V. Nagasena(Smt) v. ITO (2012) 53 SOT 166 (Bang)(Trib.)

S.54:Capital gains –Property used for residence- Exemption– Investment in joint names Investment in joint names of assessee and her husband is entitled to exemption.(S.54EC.)
Assessee, out of sale proceeds of residential property, purchased another residential property and specified bonds. Exemption u/s. 54 and 54EC could not be denied to her to the extent of 50 per cent on the ground that new property and bonds were purchased in the names of assessee and her husband when admittedly no consideration followed from the husband.(A.Y. 2007-08)
DIT(International Taxation) v. Jennifer Bhide (Mrs.) (2012) 252 CTR  444 (Karn.) (High Court)

S.54:Capital gains –Property used for residence- Exemption –Mere construction of room without amenities like boundary wall, kitchen , toilet electricity , water and sewerage connection etc cannot be held to be house , hence benefit of section 54 cannot be granted.  
The assessee claimed the long term capital gain arising from the sale of his residential house to be exempted u/s. 54 on the ground that investment was made for purchase of residential plot in Janta Enclave, Ludhiana and subsequently he had constructed a room on the said plot, which was let out at the rate of Rs.250 per month. The Assessing Officer concluded that the residential house constructed by the assessee was only one room set and as it was having no amenities, the exemption u/s. 54 could not granted. In the instant case, in order to examine the entitlement of the assessee for exemption u/s. 54, it is to be seen whether the assessee had constructed residential house within three years of the transfer of his property. For doing so, the meaning of the term `house’ is to be explored. The term `house’ has not been given any statutory definition and, thus, has to be assigned meaning as understood in common parlance. As per dictionary, it means abode, a dwelling place or building for human habitation. A building, in order to be habitable by a human being, is ordinarily required to have minimum facilities of washroom, kitchen, electricity, sewerage etc.  In view of the above, it was held that the house in question was not a residential house and therefore, the assessee was not entitled to the benefit u/s. 54. Appeal of assessee was dismissed.A.Y.1997-98)
Ashok Syal v. CIT, Jalandhar(2012) 209 Taxman 376 (P & H)(High Court)

 
S.54F: Capital gains –Investment in residential house- Exemption– New residential property purchased in joint names of assessee and his wife entitle to exemption.
Assessee having invested the entire amount of long term capital gains in purchase of new residential house was entitled to exemption u/s. 54F in respect of the entire amount even though the new property was purchased in the joint names of assessee and his wife.(A.Y.2007-08)
CIT v. Revinder Kumar Arora(2012) 252 CTR 392 (Delhi) (High Court)

S. 54F: Capital gains –Investment in residential house-  Exemption cannot be denied for holding joint property with her husband , since assessee did not own any property in status of an individual as on date of transfer , claim was allowed.
Assessee held a property jointly with her husband. She transferred another property owned by her individually for consideration under a development agreement. It was held that joint ownership of a property could be held to stand in her way of claiming exemption u/s. 54F,hence, since assessee did not own any property in status of an individual as on date of transfer, her claim was to be allowed.(A.Y.2000-01)
 P.K. Vasanthi Rangarajan(Dr.)(Smt)v. CIT, Chennai (2012) 209 Taxman 628 (Mad.) (High Court).

S. 68: Cash credits – Creditworthiness of creditor and genuineness of transaction proved, all documents produced, no addition warranted 
The assessee received loan amount through cheques from two persons. It was held that no addition u/s 68 can be made where the assessee has proved the creditworthiness of the creditor and genuineness of the transaction by producing copy of PAN, copy of ration card, copies of Income-tax returns and return of wealth tax. (A.Y. 2003-04 & 2004-05)
Abhik Jain v. ITO (2012) 18 ITR 497 (Delhi)(Trib.)

S. 68: Cash credits – Gift received from non – relative – No occasion of gift and no reciprocity of gift, hence addition sustained.
The assessee, in the instant case received certain amount as gift. The Tribunal confirmed the addition made u/s 68 on the ground that the assessee had received a gift from a person who was not related to the assessee. There was no occasion for the gift whatsoever and there was no reciprocity of gifts between the donor and the assessee.(A.Y.2002-03)
 Saroj Bala v. ITO (2012) 18 ITR 411 (Delhi)(Trib.)

S. 69: Unexplained investments –On money on sale of land – No opportunity of cross examine to director, no incriminating documents provided to the assessee, as there was  violation of principle of natural justice addition was not justified.
Addition of on-money, allegedly received by the assessee on the sale of land merely by relying on the documents found and seized from the group concern of the purchaser company and the statement made by a director thereof, without allowing the assessee to cross examine the said director or other concerned persons and without providing the incriminatory documents to the assessee is violative of principles of natural justice and therefore, same cannot be sustained. (A.Y. 2008-09) 
 Sunita Dhadda (Smt.) v. Dy. CIT (2012) 148 TTJ 719 (Jaipur)(Trib.)
Dy.CIT v. Sunita Dhadda (Smt.) (2012) 148 TTJ 719 (Jaipur)(Trib.)

S. 69: Unexplained investments – Payment of on-money for purchase of property – Handwritten loose document found at the premises of a third party does not bear the date of the alleged payments and the name of the assessee hence no addition is   to be made.
Handwritten loose document found at the premises of a third party which does not bear the date of the alleged payments and the name of the assessee cannot be the basis for making addition on account of payment of on-money for purchase of property in the absence of any corroborative material to suggest that the assessee has actually paid on-money. (A.Y. 2003-04)
K.V Lakshmi Savitri Devi(Smt) v. ACIT (2012) 148 TTJ 517 (Hyd.)(Trib.)

S. 69: Unexplained investments – Money received under Will – Genuineness of Will cannot be doubted when direct evidence available, addition deleted.
In the instant case, the assessee received money from father in law under a will. The AO made an addition doubting the genuineness of the Will. It was held that when direct evidence is available on Will, issue could not be decided on assumption without contracting statements on record. Thus, addition was deleted. (A.Y. 1996-97 to 2001-02)
Rama Yadav v. ACIT (2012) 53 SOT 22 (Delhi.) (Trib.)
S. 80G: Deduction – Donation –Charitable institution- Object of trust purely religious and linked to Hindu religious community, held not entitled to renewal of approval u/s. 80G.
Assessee was a trust for a temple with a deity which was confined only to a particular community for worship. Trust deed provided that income from trust property was to be applied in maintenance and repair of temple property, for worship of deity and in defraying of usual expense of holding festivals of deity. It was held that since objects of assessee trust were purely religious in nature, inextricably linked to Hindu religious community, it was not entitled to renewal of approval u/s. 80G.
Ramanujam Spiritual Public Charitable Trust v. CIT (2012) 138 ITD 81 (TM )(Amritsar) (Trib.)

S. 80IB: Deduction – Industrial undertakings – Investment in fixed asset exceeding prescribed limit, provision of s. 80IB (2)(iii) is  not complied, hence deduction not allowed.
The assessee made investment in fixed asset in plant & machinery exceeding prescribed limit. Deduction could not be allowed where the assessee was not considered a small scale industrial undertaking u/s 11B of Industrial (Development & Regulations)Act, 1951 thereby not complying the provisions of Section 80IB (2)(iii). (A.Y. 2008-09)
Sawaria Pipes Ltd. v. ACIT (2012) 18 ITR 573 (Hyd.)(Trib.)

S.80IB(10): Deduction –Undertaking- Development and construction-Housing project- Charitable institution-Held income derived from business cannot be considered as income derived from property held for charitable purpose, hence deduction allowed (S. 11,12A, 13 and 263) 
The assessee was a charitable institution registered u/s 12A. The assessee trust was engaged in the business of construction and earned profits out of it. The assessee claimed deduction u/s 80IB(10). It was held that the income derived from business cannot be considered as income derived from property held for charitable purpose i.e. it will no longer be income within meaning of section 11(1)(a ) and said income will form part of total income under Act and assessee would be entitled to deduction u/s 80IB (10). (A.Y. 2009-10)
India Heritage Foundation v. Dy.DIT (2012) 138 ITD 28 ( Bang.)(Trib.) 
S.90: Double taxation relief-Capital gains-Shares- DTAA-India- Mauritius – Capital gains on sale of shares of Indian company by Mauritius company, the applicant is under obligation to file return of income.(S.2(14), 139).
Applicant, a Mauritian company, proposes to transfer shares of an Indian company to a Singaporean company.  These shares were held as investments and have not been dealt with till date.  It was held that  the said shares are held by the applicant as capital assets and its proposed sale will generate gains that would qualify to be capital gains under the Act as well as under the DTAA. Though the applicant is a part of GSK Group and can be said to be under the vertical control of W Ltd a U.K. company, the fact remains that it is a legal entity in the eye of law and  there is no adequate material to rebut its ownership over the shares. It is not possible to hold that the beneficial owner of the shares is some other entity.  Even if it is held that there was treaty. Shopping in this case, same is not a taboo-Also, it cannot be said that the presumption arising out of tax residency certificate has been rebutted.  Thus, on facts, it cannot be said that the revenue has established a case of an attempt at tax avoidance.  Though the proposed sale would be outside the stock exchange, it is not shown that a company holding shares in another company cannot sell the shares otherwise than through a stock exchange.  Thus, the argument that the proposed sale would involve avoidance of securities transaction tax cannot be accepted . There is no obligation on the applicant to sell the shares through a stock exchange. The argument that unless the applicant is actually taxed in Mauritius or is liable to be actually taxed on the capital gains that would arise in Mauritius, DTAA is not attracted cannot be accepted.  Therefore, the capital gains would not be chargeable to tax in India in view of para 4 of art. 13 of the DTAA between India and Mauritius.  Consequently, there is no obligation to withhold tax. Obligation under s. 139 does not simply disappear merely because a person is entitled to claim benefit of a DTAA.  Therefore, the applicant will have the obligation to file return in terms of S. 139.
Castleton Investment Ltd In re(2012) 252 CTR 131(AAR)

S. 92C:Avoidance of tax- Transfer pricing – Arms Length Price – Discount to both domestic company and AEs – No adjustment in ALP as in independent business situation granting of discount is a normal occurrence.
In the instant case, assessee rendered similar service to both domestic customers and AEs abroad, but granted discount of 10% only to AE abroad. According to TPO price of services rendered was not at ALP and thus, he made upward adjustment in ALP to the extent of discount allowed. It was held that in independent business situation granting of discount is a normal occurrence and unless AO demonstrates that discount so allowed would not have been allowed in an arm’s length situation, ALP adjustment could not be made in respect of the same. It was therefore held that since there was nothing on record to show to even suggest that discount in question was not arm’s length discount, or that discount had not been allowed under any other situations, adjustment made by revenue was set aside. (A.Y. 2006-07)
Dresser- Rand India (P.) v. Addl.CIT (2012) 53 SOT 173 (Mum.)(Trib.)  

S.127:Income –tax authorities-Power to transfer cases – Condition precedent for transfer –Opportunity to be heard must be given.
In a case where the Assessing Officer from whom the case is to be transferred and the Assessing Officer to whom the case is to be transferred are not subordinate to the same Director General, or Chief Commissioner or Commissioner, two basic requirements are required to be satisfied before making an order transferring the case u/s. 127(2) of the I.T. Act, 1961, viz., the concerned Director General, Chief Commissioner o Commissioner from whose jurisdiction the case is to be transferred is required to give the assessee a reasonable opportunity of being heard; and the concerned authority is required to record reasons for doing so. In Ajantha Inds. vs. CBDT (1976) 102 ITR 281 the Supreme Court has held that not only is the requirement of recording reasons u/s. 127(1) a mandatory direction under the law but that non communication thereof is not saved by showing that reasons exist in the file although not communicated to the assessee. Thus, non communication of the reasons recorded would also vitiated the order made u/s. 127(2).
Madhu Khurana v. CIT(2012) 347 ITR 183 (Guj.)(High Court)

S.131: Income –tax authorities-Powers-Discovery-Production of evidence- Statement recorded – Retraction-Held not justified.
The Assessee made a statement in the enquiry conducted by the Department as regards the parting of a sum over and above what was recorded in the sale deed. A reading of the questions and answers shows that the assessee was well aware of the contents of the statement made by him. The statement was recorded in the year 1999 and the assessee thereafter too participated in the enquiry until 2003 and he had no doubt about the truthfulness of the statement made. However, for some reason, best known to him, the assessee in the letter on 26th June, 2003, took a plea that the statements were not recorded in the presence of Dy. Director of Income Tax (Investigation) and statements were not given voluntarily.  Taking note of the time of retraction, in the absence of any materials to substantiate the said contention, coupled with other material documents available in the form of seizure made on the premises of K and A and the consistency in the answers made by the assessee, the contention of the assessee that the Department committed serious error in ignoring the retraction is liable to be rejected. The contention of the assessee that the statement was in violation of the provisions of CPC and CPC, is also not sustainable.  (Block period 1st April, 1989 to 19th August, 1999)
K. Sakthivel v. ACIT (2012) 76 DTR 79 (Mad)(High Court)

S.131: Income –tax authorities-Powers- Service of summons- Validity of service of notice.(S.292BB)
Summons u/s 131 was served on N who has acknowledged the same. Averments in the reply affidavit show that the petitioner is admitting service of summons on him and also that he appeared before the respondent in pursuance of the summons. Though S. 292BB is not retrospective, this section governs all proceedings initiated subsequent to 1st April, 2008, even if such proceedings are in relation to assessment years prior to 1st April, 2008. Thus, petitioner having admitted service of summons and appeared before the respondent in pursuance of the summons, cannot contend that the summons was not duly served on him or that the service was improper for any reason. As regards the contention of the petitioner that the impugned notices were wrongly addressed, petitioner does not have a case that the address indicated in the documents was not that of his residence. Therefore, the fact that in some of the documents the petitioner’s address as been shown differently did not invalidate the documents that were served at his residential address which was mentioned by the petitioner himself in his letter and the sworn statement. (A.Y. 2003-04 to A.Y. 2009 -10)
K. M. Mehaboob(Dr.) v. DCIT (2012) 76 DTR 90 (Ker.)(High Court)

S. 132:Income –tax authorities- Powers- Search  and  Seizure – Warrant – No evidence produced by persons carrying silver articles to establish ownership – Action of authorities held proper: Criminal Court – Appropriate Authority: (S. 132A,. 451 Cr. P.C.)
The restrictions placed by the provisions of sections 132 and 132A of the Act, and rule 112A of the Income tax Rules, 1962, are not unreasonable restrictions on the freedom under articles 19(1)(f) and (g) or Article 14 of the Constitution. No documentary evidence was produced by the persons carrying silver ornaments and articles in response to inquiries made at the time of recording of statements under sec. 131 of the Act to establish the source, acquisition and ownership of the silver articles.  Thus, the act on the part of the concerned authority could not be said to be unreasonable justifying  interference at this stage. Section 451 of the Code of Criminal Procedure, 1973, makes the criminal court custodial egis of the property produced before the court in connection with the case regarding which an offence appears to have been committed or which appears to have been used for the commission of the offence. Therefore, the contention of the petitioners that the criminal court was not the appropriate authority or the person in terms of sub section (2) of section 132A was not tenable.
Sunil Vidhyasagar Gat & Anr v. Shalini Verma  Dy. Director of Income tax (Invt.) & Ors(2012) 347 ITR 1 (Guj.)(High Court)

S.132:Income –tax authorities-Powers- Search and seizure –Stock in trade- Seizure of stock in trade was directed to be returned in view of specific provision contained in proviso to section 132(1)((iii). 
Section 132(1)(iii),empowers the authorized officer to seize any such books of account , other documents , money billion , jewellery or other valuable article or thing found as a result of such search which represent either wholly or partly undisclosed income or property of the person , however , the proviso carves out an exception . It provides that bullion, jewellery or other valuable article or thing , being stock  in trade of the business, found as a result of search shall not be seized but the authorized officer shall make a note or inventory of such stock in trade of the business , therefore the court held that in view of the specific provision contained in proviso to S. 132(1)(iii) and third proviso to S. 132(1)(v), bullion, jewellery or other valuable article or things being stock in trade of business found as a result of search could not be seized, even if said stock in trade represents wholly or partly undisclosed income or property of the assessee. On writ the Court directed the Income tax authorities to return the  jewellery seized .
Puspa Ranjan Sahoo v. ACIT (2012) 252 CTR 113 (Orissa) (High Court)

S.132:Income-tax authorities- Search and seizure – Authorisation  in joint names-In view of section 292CC with retrospective effect from 1st April, 1976, authorization in joint names was held to be valid , and matter was set aide to Commissioner (Appeals) to decide the appeal on merits.(S. 292CC)
The court held that the effect of insertion of S. 292CC with retrospective effect from 1st April, 1976 is that (1) it is not necessary for the authorities to issue an authorization u/s. 132 or requisition u/s. 132A separately in the name of search person; (2) if an authorization/requisition has been issued in the names of more than one person, it shall not be construed that it was issued in the name of AOP or BOI, consisting u/s. 132A in the names of more than one person, the assessment or reassessment can be made separately in the name of search of the person mentioned in the authorization/requisition. As the provisions of S. 292CC have come into force retrospectively i.e. from 1st April, 1976, it shall be deemed that the aforesaid provision was on the statute book i.e. The IT Act, 1961 since 1st April 1976 and the consequence of issue of a warrant of authorization under sec. 132 if issued in joint names of more than one person has to be adjudged in the light of the provisions of s. 292CC.In the present case the warrant of authorization under section 132 has been issued on 10th  Nov, 2006 in the joint names of three persons , In view of section 292CC with retrospective effect from 1st April , 1976 , authorization in joint names was held to be valid, and matter was set aide to Commissioner (Appeals) to decide the appeal on merits. Both the orders passed by the Commissioner (Appeals) and the Tribunal are set aside and the matter was remanded to the Commissioner (Appeals) to decide the appeal on merits.  (A.Ys. 2001-02 to 2006-07)   
CIT v. Devesh Singh (2012) 252 CTR 356 / 76 DTR 403(FB.) (All.) (High Court)
CIT v. Yogendra Singh ( (2012) 252 CTR 356 / 76 DTR 403(FB.) (All.)(High Court)

S.142A: Assessment-Reference to valuation officer. (S. 69B)
When the books of account in respect of cost of construction have been maintained by the assessee and the same were not rejected, the matter could not be referred to the DVO for assessing the value. (A.Y. 2007-08)
CIT v. Chohan Resorts (2012) 76 DTR 163 (P & H) (High Court)

S.142A: Assessment-Reference to valuation officer. (S. 50C, 69, 292B)
Mentioning of S. 50C in the notice instead of S.142A is not fatal, also saved by S.292B. S. 142A does not require that for exercise of power under s.142A(1), the A.O. should first reject the books of account of the assessee in which he has shown the valuation of such investment, as a pre-condition for enquiring into the same. Even otherwise, third respondent did not accept the valuation shown by the petitioner in its balance sheet and accounts and he was asking for more information to arrive at the fair market value of the petitioner’s plant and civil works connected with it. In fact, that can be treated as amounting to rejecting the books of account of the petitioner by implication and hence no formal order rejecting the books of account is necessary. Writ petition was also not maintainable in view of alternate remedy.  (A.Y. 2009-10)
Bharathi Cement Corporation (P) Ltd. v. CIT (2012) 76 DTR 155 (AP)(High Court)

S. 143: Assessment – Notice – Sending of notice on address, other than that given in return of income and subsequently returned , not amount to either service or deemed service of such notice. (S. 292BB)
No assessment u/s 143(3) or 144 can be said to be have validly made where notice u/s 143(2) is not served or where such notice is served beyond prescribed period or improperly served. The AO cannot wash off his hands from duty to serve notice u/s 143(2) on address given in return, simply on premise that assessee shifted his base to another address at subsequent date. Sending of notice u/s 143(2) on address, other than that given in return of income, and its consequent return by postal authorities, does not amount to either service or deemed service of such notice. (A.Y. 2008-09)
Prakash Ramji Gavali v. ITO (2012) 138 ITD 1 (Mum.)(Trib.)    

S. 145: Assessment-Method of accounting- Project completion method – Sale of TDR
In case of an assessee following projection completion method, receipts by way of sale of TDR, which TDR has direct nexus with the project undertaken, can be brought to tax only in the year in which the project is completed.(A.Y.2006 – 2007)
Puspha Construction Co. v. ITO, ITAT ‘C’ Bench, Mumbai, ITA No. 193/Mum./2010, dated 25-04-2012, BCAJ Pg. 59, Vol. 44-A Part 4, July 2012.(Mum.)(Trib.)

S145: Assessment- Method of accounting –Not produced ledger copies, etc. –Rejection of accounts  was held to be justified.
Assessee firm was engaged in business of civil contracts. During course of assessment proceedings, assessee did not produce account books before AO. On plea that same were impounded by local police; however, no evidence was  labour charges, salary expenses, etc. Assessing Officer was vested with discretion of either rejecting book results to estimate profit or to proceed on basis of ledger copies. Assessing Officer having chosen second option, Tribunal could not substitute its opinion to that of Assessing Officer to hold that it was a fit case for rejection of books of account, unless it was pointed out that in process of adopting alternative option, Assessing Officer had arbitrarily made addition which had no rational basis. Hence, in absence of such a finding/conclusion, order passed by A.O. was not erroneous. Order of Assessing Officer was held to be justified , matter was decided in favour of revenue.             (A.Y. 2005-06)
Pragati Engineering Corporation  v. ITO (2012) 137 ITD 355 / 77 DTR 121 / 149 TTJ 273 (TM. ) (Luck)(Trib.)

S. 145A:Assessment-Method of accounting – Valuation of stock-Provision applies only to valuation of purchase and sale of goods and inventory  and not to service contract.
The provisions of section 145A applies only in respect of valuation of purchase and sale of goods and inventory and not to service contracts. Thus, provisions of said section cannot be invoked for adding service tax to gross receipts. (A.Y. 2007-08)
Pharma search v. ACIT (2012) 53 SOT 1 (Mum.) ( Trib.)

S.147: Reassessment – Absence of service of notice u/s 148 on power of attorney holder of NRIs.(S.148)
In response to the notice by ITO, Jalandhar, J, the power of attorney holder of the NRI assessee, had filed the return which has not been treated as invalid. Further, that ITO issued a letter to ‘J’ seeking clarification regarding non-declaration of capital gain arising on the acquisition of assessee’s land situated at Village Noorpur Dona in District Kapurthala. Thus, it cannot be presumed that the department did not have any knowledge that ‘J’ is the power of attorney holder of ‘JS’ and other two NRI assessees. As regards the notice under s. 131(1A) issued by the Asstt. Director of IT, there is no service record of the same with the Department so as to prove that the said notice has actually been served on JS and other assessees at Village Noorpur Dona. Thus, this does not support the Revenue’s case. However, notice under s. 148 then issued by ITO, Kapurthala, in the name of assessee. Notice server of the department has given a report that JS does not reside at the given address of  Village Noorpur Dona. Reports of the Sarpanch and the Municipal Corporation of Kapurthala also state that JS and other assessees do not live in Village Noorpur Dona/ Mansoorval Dona. As regards the affixation of the impugned notice at Janjghar/Dharamshala in village Noorpur Dona, the said address is not the last known address of the assessees. Copies of the said notices and assessment orders were obtained by inspection after the assessments were made. Thus, the arguments of the Departmental Representative that the notices and orders have been served upon the assessees at Village Noorpur land at Village Noorpur Dona belonging to all the three assessees pursuant to a verbal agreement with J and the payment therefore is made to J in cash after six months. Thus the impugned notices u/s 148 should have been served upon J, power of attorney holder of NRI assessee, to whom other notices had been issued by the Department. Department not having served the notices on J the notices issued on JS and other assessees at Village Noorpur Dona/Mansoorval Dona are bad in law. Hence assessments made pursuant thereto are quashed. (A.Y. 1999-2000)
Jasbir Singh v. ITO (2012) 76 DTR 36 (Asr.)(Trib)

S.147: Reassessment- Reason to believe – Assessment u/s 143(1)
From the materials, it cannot be stated that the AO had not recorded reasons before issuance of the notice. It cannot be contended that since notice u/s. 143(2) was not issued, assessment cannot be reopened. Return was accepted u/s. 143(1) and therefore it cannot be stated that the AO formed any opinion with respect to any of the aspects arising in such return. AO in guise of power to reopen an assessment, cannot seek to undertake a fishing or roving inquiry and seek to verify the claims as if it were a scrutiny assessment. However, with respect to other two grounds, the AO had some materials at his command to form a belief that income chargeable to tax had escaped assessment. Reopening was therefore sustainable. (A.Y. 2002-03)
Inductotherm (I) P. Ltd. v. M. Gopalan, Dy. CIT (2012) 77 DTR 1 (Guj.)(High Court)

S. 147: Reassessment – Reasons recorded – Precise and definite information received , reassessment was justified.
In the instant case, assessing officer completed assessment of assessee. Subsequently, he received information about receipt of accommodation entries by assessee aggregating to Rs.14.45 lakhs from entry providers and, accordingly, re-opened assessment for taxing same. It was held that since a precise and definite information was received by AO regarding receipt of accommodation entries and after comparing information, with information available in return of assessee, he recorded definite reasons in clear terms that income escaped assessment and hence re-opening was justified. (A.Y. 2002-03)
ITO v. Mukut Finvest & Properties (P.) Ltd (2012) 138 ITD 166 (Delhi)(Trib.) 
 
S.148: Reassessment – Notice – Status of assessee – Matter remanded- Notice to be issued in appropriate status in which income to be assessed.
The notice was issued to the assessee in the status of association of persons, comprising 3 persons. Pursuant to the notice issued to the assessee an assessment was completed in respect of the assessee as an association of persons comprising 3 persons. The Commissioner (Appeals) modified the status from association of persons to body of individuals comprising two persons. This was upheld by the Tribunal. On appeal by assessee it was held that if the status of the assessee was required to be modified, the only option available was to assess the income in the appropriate status, if permitted by law, by issuing a notice to the assessee in that particulars status. For modifying the status of the association of persons consisting of three persons to a body of individuals consisting of two persons, the Commissioner (Appeals) could not have acted on his own. The only option available to him was to set aside the assessment proceedings and remand the matter back to the Assessing Officer giving him the liberty of issuing a notice to the assessee in the status  of a body of individuals comprising two persons, if it was otherwise permissible in law and after obtaining the approval of the Board, if necessary. The order passed by the Commissioner (Appeals) which was upheld by the Tribunal whereby the status of the assessee was “merely” modified from association of persons to body of individuals was not sustainable. The assessment proceedings were required to be set aside and liberty was granted to the Revenue to issue a fresh notice to the assessee according to law. (A.Y. 1972-73)
Gutta Anjaneyulu & Co. v. CIT(2012) 347 ITR 135 (AP.)(High Court)

 S. 148: Reassessment – Notice – Issued on the basis of survey u/s 133A and statements obtained in the course of survey, reassessment held to be invalid.(S.133A,147)
Reassessment was held to be invalid where notice u/s 148 was issued solely on the basis of survey u/s 133A and statements obtained in the course of survey and nothing else on record. (AY 1999-2000 to 2005-06)
 J. Mohan(Dr.), & Anr. v. ACIT (2012)18 ITR 363 (Chennai)(Trib.)

S.153C: Assessment- Income of any other person-Search and seizure-Satisfaction.
It is only the clerical satisfaction of the A.O. that is contemplated u/s 153C. In the instant case, the petitioner has not averred that the A.O. did not record his satisfaction. He only demanded a copy of the satisfaction recorded by the A.O. Request of the petitioner has been turned down stating that the assessee is not entitled to copy of the note. In his subsequent statement respondent has further clarified that the copy of the satisfaction recorded by the A.O. was not given to the petitioner as it is a confidential correspondence and the reason for taking up his case for scrutiny had been already communicated to the petitioner in the notice issued u/s 153A. Therefore, there is no substance in the case of the petitioner that the proceedings were initiated against him without recording the satisfaction of the A.O. in terms of s.153C. (A.Y. 2003-04 to A.Y. 2009 -10)
K. M. Mehaboob (Dr.)v. DCIT (2012) 76 DTR 90 (Ker.)(High Court)

S. 158B: Block assessment –Definitions- Undisclosed income – Agreement for development of land already declared in ROI prior to search, long term capital gain arising on transfer outside scope.
Assessee having already declared the agreement entered into by them with a company for the development of their landed property in their returns prior to date of search and also the capital gain arising on transfer of proportionate portion of land in AY 2000-01 and subsequent years, the long term capital gains fall outside the scope of the definition of “undisclosed income” in S. 158B(b).
ACIT v. Late Arun Kumar Haridas Dattani By LRs (2012) 148 TTJ 763 (Cochin)(Trib.)     

S.158BB:Block assessment- Procedure-Search and seizure-Computation-Undisclosed income (158BC)
Record showing unrecorded sales of different dates seized and on that basis the A.O. estimated the sales for entire year. Addition partly upheld by Tribunal. In such cases, some amount of estimate has to be made, however, it should not be unreasonable or arbitrary. Estimate has to have some rational connection with the addition being made. Finding shows that the Tribunal had adopted a rational basis for determining the unaccounted production for the block period. View taken by the Tribunal is a plausible and reasonable view in which no perversity could be pointed out.
Surinder Kumar v. CIT (2012) 76 DTR 71 (P&H)(High Court)

S.160: Representative  assessee – Non resident – Agent- Subsidiary of holding company-Subsidiary company is not assessable as representative assessee. (S. 161, 162, 163 )
The first petitioner was a company incorporated in the State of New York in the United States of America. The second petitioner was a company incorporated in Mauritius that held shares in group companies and investments and had a wholly owned subsidiary in India, G, the fourth respondent to carry on the business of computer  software, i.e, data entry conversion, data processing, data analysis, business support billing, etc. The entire share capital of `G’ was acquired by the second petitioner along with certain individuals Promotion Board. The second petitioner was a wholly owned subsidiary, through various intermediate holdings of the first petitioner. There were a series of agreements. The consequence of these agreements was that: (a) the shares of the Indian company moved by a gift, from GM, a Mauritius company to GI, another Mauritius company; (b) the shares of the GI were transferred to a holding company. The shares with the holding company were then transferred and so on in a series of transactions, and finally the holding company was GG, in which other business process outsourcing businesses from other countries were also consolidated; (c) The shares of GG were sold to a Luxembourg company, and through a series of transactions, the holding shares were acquired by G (Lux); (d) in the aforesaid manner, G (Lux) acquired 99.1 per cent of the preferred stock and 60.6 per cent of the nominal common stock of GG (Lux) a newly organized Luxembourg company and which was a transfer of a capital asset situated outside India, i.e, shares in a company incorporated in Luxembourg. According to the petitioners, the only capital asset in India which was transferred in the course of the restructuring and reorganization transactions was the gift of the shares of G by the second petitioner – A Mauritius company and certain nominee shareholders to GI and GIH, respectively (both Mauritius companies).  Therefore, no income had accrued or arisen or could be deemed to have accrued or arisen in India. The Income tax Dept, on the other hand, maintained that it was a taxable event in India. On a writ petition against the notice: Held, allowing the petition, that even if business connections were proved, it would at the most make the fourth respondent  an agent of the petitioners had in the eventuality, the I.T. Dept. could treat the fourth  respondent as a representative assessee of the first petitioner. However, in order to assess a particular income, it had to be further established by the Dept. that the fourth respondent had some connection with the income earned by the first petitioner which was sought to be taxed at the hands of the fourth respondent. There was no such live link of income earned by the first petitioner and the fourth respondent in respect of the transaction which was sought to be taxed. The transaction in question, viz. transfer of share to a third party, took place outside India. The fourth respondent was sought to be taxed as representative assessee when he had no role in the transfer. Merely because those shares related to the fourth respondent that would not make it an agent qua deemed capital gains purportedly earned by the petitioner. Therefore, the notice was not valid and was liable to be quashed.(A.Y. 2005-06) 
General Electric Co. Anr v. Dy. DIT& Ors           (2012) 347 ITR 60 (Delhi)(High Court)

S.194C: Deduction  at source–Contractors-Sub-contractors-Hiring services-Agreement for hiring services of contractors for rendering transportation services for goods and passengers by buses , cars , sumos ,utility vans etc would be covered under section 194C and not under section 194I. (S.194I )
The assessee company had engaged the services of contractors for rendering transportation services for goods and passengers by buses, cars, sumos, utility vans, etc.     The assessee made deduction of tax in accordance with the provisions u/s. 194C. The revenue authorities, however, held that carriages for the purpose of carrying goods and passengers would be treated to be machinery within the meaning of explanation to sec. 194I and, therefore, the assessee was liable to deduct higher amount of tax as per sec. 194-I.

It was held that on comparison of the two Explanations added to sec. 194I and 194C, it appears that it was never the intention for the Legislature to overlap any of the items mentioned within the meaning of `rent’, by including the same within the meaning of `work’ under sec. 194C. Since the agreement for carriage of goods by vehicles other than railways comes within the purview of explanation of `work’ within the meaning of sec. 194C, it necessarily follows that it was never the intention of the Legislature to include the amount taken for hiring of such vehicles within the meaning of word `rent’. Appeal of revenue was dismissed and the order of Tribunal up held.  (A.Y. 2007-08)
CIT (TDS) v. Reliance Engineering Associates (P) Ltd. (2012) 209 Taxman 351 (Guj.)(High Court)

S. 194I:  Deduction at source –Rent- landing and parking charges payable to Airport Authority of India can be held to be rent hence provision of section 194I is held not applicable.
Landing and parking charges paid by the assessee to Airport Authority of India do not amount to rent within the meaning of S. 194-I. Charges levied are in the nature of fee for the services offered rather than in the nature of rent for the use of the land.(A.Y. 1997-98 to 1999-2000
CIT v. Singapore Airlines Ltd(2012) 252 CTR 429 / 76 DTR 420 (Mad.)(High Court)

S.194I: Deduction at source – Rent –No TDS where lessor- lessee relationship does not exist.
Assessee was a 100% subsidiary of its holding company ‘M’. Holding company took an office premises on rent and permitted assessee to use of portion of said premises. Assessee reimbursed certain amount of rent to holding company without deducting TDS. It was held that where there is no lessor-lessee relationship between holding company and assessee, provisions of S. 194I were not applicable. (A.Y. 2008-09)
ACIT v. Result Services P. Ltd. (2012) 52 SOT 598 (Delhi)(Trib.)

S.194J: Deduction at source- Fees for professional or technical services- Payment of transmission and wheeling charges to electricity transmission company.
Applicant is engaged in the business of distribution and supply of electricity to customers. Production is carried out by the generating company, another entity, and transmission to the applicant is made through the transmission system network of the transmission company, RVPN . It is not possible to accept the argument that no rendering of technical services is involved in maintaining proper and regular transmission of electrical energy, professional and technical personnel ensure regular and consistent transmission of electrical energy at the grid voltage at the distribution point of the applicant .Transmission involves rendering of technical services and the consideration paid towards transmission charges partakes the character of fees for technical services – Thus, the transmission and wheeling charges paid by the applicant to RVPN are in the nature of fees for technical services and the applicant is obliged to withhold tax thereon under s. 194J.
Ajmer Vidyut Vitran Nigam Ltd. In re (2012) 76 DTR 209  / 252 CTR 467 (AAR )

S.194J: Deduction at source- Fees for professional or technical services- Payment of State load despatch centre charges to electricity transmission company.(S.194C )
State Load Despatch Centre (SLDC) is responsible for optimum scheduling and despatch of electricity within the state in accordance with the contracts entered into with the licensees and generating companies. It has to monitor grid operations, keep accounts of the quantity of electricity transmitted through the State grid and exercise supervision and control over the transmission system. Its main duty is the general co-ordination of production and transmission of electricity for an even distribution. Considering the nature of obligation placed on the centre and the role it performs, it cannot be said that it is rendering any technical services to the applicant. Thus, the fee paid to the centre does not qualify as fees for technical services. It appears to be more of a supervisory charges. Therefore, no withholding of tax in terms of S.194J or 194C is called for on the said charges.

Ajmer Vidyut Vitran Nigam Ltd. In re (2012) 76 DTR 209  / 252 CTR 467 (AAR )

S.194LA: Deduction at source- Compensation on acquisition of certain immoveable property-Provision is held to be Constitutionally valid only when compensation was paid tax had to be deducted , petition was dismissed.
The petitioners were aggrieved by the action on the part of the respondents in deducting tax at source u/s. 194LA while paying the amount of compensation on acquisition of the land belonging to the petitioners. The petitioners had also challenged the constitutional validity of sec. 194LA of the I.T. Act. 1961.

It was held that the question of deducting tax at source arises at the time of making payment. In the instant case, compensation was paid on 28-4-2010 and on that day, sec. 194LA was on the statute book and, therefore, tax had to be deducted while making the payment of compensation.

The object of sec. 194LA as per the CBDT Circular No. 5 of 2005, of 2005 dated 15-7-2005(276 ITR (St.) 151) is to curb the tendency of evading taxes by not reporting the income comprised in the compensation received on acquisition of immovable property. Sec. 194LA does not determine the tax liability of the person receiving the amount of compensation but it merely requires the person paying the compensation to deduct certain percentage of the sum payable as compensation towards the tax liability of the recipient that would be determined in the assessment proceedings. Therefore, the argument that sec. 194LA purports to impose tax on the cost of the land acquired under the Land Acquisition Act is without any merit. Consequently, the challenge to the  constitutional validity of sec. 194LA must fail. Petition was dismissed. 
Leela Bhagwansing Advani v. Union of India (2012) 209 Taxman 356 (Bom.)(High Court)

S. 195: Deduction at source – obligation to withhold tax – Obligation arises only if payment is chargeable to tax in hands of non-resident recipient in India.
The obligation of tax deduction at source arises under this provision arises only if payment is chargeable to tax in hands of non-resident recipient in India. Therefore, merely because a person has not deducted tax at source from remittance abroad, it cannot be inferred that person making remittance abroad, it cannot be inferred that person making remittance has committed a failure in discharging his tax withholding obligation. (A.Y. 2006-07)
Dresser Rand India (P.) Ltd. v. Addl. CIT (2012) 53 SOT 173 (Mum.) (Trib.)

S.201: Deduction at source- Failure to deduct or pay- Assessee in default- Recipient has paid the tax.
The Act provides for three different consequences for lapse on account of non deduction of tax at source viz., penal provisions [s. 271C], and interest provisions [S.201(1A)] and recovery provisions [S.201(1)]. As far as the matter under the later two provisions were concerned, the former provides for levy of interest in case of any delay in recovery of such taxes and the later provisions seek to make good any loss to revenue on account of lapse by the assessee tax deductor. The Tribunal added that the question of making good the loss of revenue arises only when there is indeed a loss of revenue and the loss of revenue can be there only when recipient of income has not paid tax. Therefore, it held that recovery provisions u/s 201(1) can be invoked only when loss to revenue is established, and that can be established when it is demonstrated that the recipient of income has not paid due taxes thereon. (A.Y. 2005-06, 2006-07, 2008-09)
Ramakrishna Vedanta Math v. ITO, ITAT ‘C’ Bench, ITA No.477,478 & 479 /Kol/2012, Dt.31-07-2012, BCAJ Pg. 32, Vol. 44A Part 6, September, 2012.(Kol.)(Trib)

S.201: Deduction at source-Failure to deduct or pay-Reimbursement of expenses. (S.195)
Reimbursement of relocation related expenses of employees had no element of income embedded in such payments. No mark up has been made and the disputed payments are purely reimbursement of actual expenses incurred. As there is no obligation to deduct tax at source, Assessee could not be treated as an assessee in default u/s 201(1). (A.Y. 2007-08)
Global E-Business Operations (P) Ltd. v. DCIT (2012) 76 DTR 106 (Bang)(Trib.)

S.206C: Collection at source- Auction of parking lot – No contract executed – Tax at source to be collected as oral contract is a valid contract as per contract Act (S.  2(h) & 10 of Contract Act)
Assessee, city development authority, auctioned for running of parking lots and allotted same to different person. As assessee defaulted in collecting taxes at source, Assessing Officer raised demand u/s. 206C(1C) along with interest. The assessee contended that though auction was held for parking lots, but no contract was executed. Thus, it was held that as an agreement could be oral in view of sec. 2(h) and section 10 of Contract Act, plea of assessee was to be rejected. Hence, order of Assessing Officer was upheld. (A.Y. 2007-08 & 2009-10)
Agra Development Authority v. ACIT (2012) 138 ITD 127 (Agra) (Trib.)

S.220: Collection and recovery- Assessee deemed in default- Stay of demand
Order of the CIT(A) rejecting stay petition without considering all the submissions of the petitioner and also failing to point out even briefly in the order as to why the interim payment of 50 percent of Rs.6.36 crores is necessary in the facts of the present case is liable to be set aside. Revenue’s interests also needs to be protected and the petitioner’s undertaking not to dispose off, alienate, encumber, part with possession of or create any third party right, title and/or interest in respect of the immovable property, is accepted. (A.Y. 2004-05 to 2007-08)
Balaji Universal Tradelink (P) Ltd. v. UOI (2012) 76 DTR 132 (Bom.)(High Court)

S.220:Collection and recovery – Assessee deemed in default-Stay of recovery – Adjustment of refund against current demand – ITAT has power to stay recovery and not permit adjustment of refund . (S. 245 )
Each assessment year is treated as separate and independent under the Act, Sec. 245 of the Act permits the Revenue to recover the demand of one year which is pending by adjusting the refund due for another year. Adjustment u/s. 245 of the Act is a method of recovery.     Section 220(6) which permits the A.O. to treat the assessee as not in default is not applicable when an appeal is preferred before the Tribunal, as it applies only when an assessee has field an appeal u/s. 246 or Sec. 246A. As per Circular No. 1914, dated Dec. 2, 1993, the Assessing Officer may reserve a right to adjust, if the circumstances so warrant. In a given case, the AO may not reserve the right to refund. Further, reserving a right is different from exercise of  right or justification for exercise of a discretionary right/power. Moreover, the circular is not binding on the Tribunal.(A.Y.2006-07)
Maruti Suzuki India Ltd  v. Dy. CIT ( 2012)  347 ITR 43 (Delhi)(High Court)

S.220:Collection and recovery –Condition precedent- Demand Notice not received by assessee, recovery proceeding held to be  not valid. (S. 156)
The court held that on a plain reading of sub-section (4) of sec. 220 of the Income tax Act, 1961, it is apparent that a person can be said to be an assessee in default, (i) if he does not pay the amount specified in a notice u/s. 156 within the time limited under sub section (1), viz., 35 days of the service of notice, or (ii) if he does not pay the amount specified in a notice u/s. 156 within the time extended under sub section (3) at the place and to the person mentioned in the notice. Thus, before invoking the provisions of section 220 of the Act, a notice is required to be served upon the assessee, specifying the amount as well as the place and the person to whom such amount is to be paid. In the absence of any demand notice u/s. 156 of the Act being served upon the assessee, the time to make payment under sub section (1) would not start running. On facts, no demand notice, as contemplated u/s. 156 of the Act was served upon the petitioner. The petitioner at the earliest point of time, upon receipt of the recovery notice had objected to the initiation of the recovery proceedings as it had not received copies of the assessment order and demand notice. Thus, in the absence of service of a demand notice u/s. 156 of the Act on the petitioner, which was a basic requirement for invoking the provisions of sec. 220 of the Act, the Petitioner could not have been treated to be an assessee in default. The subsequent proceedings u/s. 220 to 226 of the Act were without jurisdiction.(A.Y. 1985-86)
Saraswati  Moulding Works v. CIT & Ors(2012) 347 ITR 161 (Guj.)(High Court)

S.245C: Settlement Commission- Settlement of cases- Conditions.
While granting immunity from prosecution and imposition of penalty it is incumbent upon the Settlement Commission to examine as to whether the criteria prescribed u/s 245C is wholly complied or not; Settlement Commission having granted immunity from prosecution and penalty without recording any finding as to whether there is deliberate concealment of income or not, other of the Single Judge remanding the matter for de novo adjudication does not suffer from any material irregularity or illegality so as to warrant any interference by the Court in its appellate jurisdiction.
ING Vysya Bank Ltd. v. CIT (2012) 76 DTR 193 (Karn.)(High Court)

S.245R: Advance rulings-Procedure-Rectification of mistakes –Rule 19
An application was made by the Revenue under rule 19 for rectification of mistakes in the order. It was held that, the objection that the ruling has been given effect to by the A.O. cannot be fully accepted. An order under S. 195 or S. 197 has been understood only as a provisional order subject always to a regular assessment and, therefore, modification of the certificate granted to the company by the AO pursuant to the advance ruling cannot stand in the way of the application for rectification of the ruling being entertained on merits.
Ruling of the Authority to the effect that the income from offshore supplies is not liable to tax in India being a ruling inconsistent with its finding that the assessable unit is an AOP, mistake is apparent from record and the same is required to be corrected; that part of the ruling which rules that the amount received/receivable by the applicant (member of AOP) for offshore supplies in terms of the contract is not liable to tax in India is reopened and the main application is posted for fresh hearing.
CTCI Overseas Corporation Ltd In re(2012) 76 DTR 282 (AAR)

S.245R: Advance rulings-Procedure-Application-Rejection of application
Applicant and TM Ltd. having entered into a share purchase agreement for allotment of TM’s share in applicant’s name at the time when TM Ltd. was under an outstanding obligation to issue shares to another company under a multi-party agreement which stood in the way of a public issue, and TM Ltd. having subsequently made a public issue, the circuitous arrangement was made evidently to circumvent cl.2.6.1. of the SEBI Guidelines, 2000, and, therefore, advance ruling is declined on the aforesaid transaction.
Mahindra-BT Investment Company (Mauritius) Ltd., In Re (2012) 76 DTR 125 / 252 CTR 460 (AAR)

S.245R: Advance rulings-Procedure-Application-Rejection of application
Applicant has been granted some rights or privileges by a Sri Lankan company SLT based on an agreement . To understand what passes to the applicant under that agreement, it is necessary to know the rights of the grantor.  Rights of SLT spring from a consortium agreement.  An understanding of the terms and effect of that document is essential for giving ruling on the questions raised by the applicant is a satisfactory manner. Applicant has not produced the consortium agreement despite numerous adjournments,  hence, ruling is declined on the questions formulated in the application.
Dishnet Wireless Ltd, In Re (2012) 76 DTR 302 (AAR)

S. 246A: Commissioner (Appeals)-Appealable orders- Penalty for failure to furnish annual information is appealable before Commissioner (Appeals) and Tribunal.(S.253(1)(c), 271, 271FA).
Sec. 246A(1)(q) provides for appeals before the CIT(A) against an order of penalty passed under Chapter XXI. Sec. 271FA admittedly falls within Chapter XXI.  Therefore, appeal against an order passed by Director of IT, an officer of the rank of CIT u/s. 271FA is maintainable before CIT(A).  Merely because orders u/s. 271 and 272A passed by an officer of the rank of CIT are appealable before the Tribunal u/s. 253, it cannot be held that an order u/s. 271FA passed by an officer of the rank of CIT should also be appealable before the Tribunal.  Though orders of penalty us/. 271 and 272A fall under Chapter XXI, appeals there from stand excluded before the CIT(A) under the general provisions of S. 246A(1)(q) by virtue of the specific provision u/s. 253(1)(c). Consequently, an order u/s. 271FA is appealable u/s. 246A(1)(q).
DIT v. Ravi Vijay & Anr(2012) 252 CTR 228 (Raj.) (High Court)
DIT v. Balu Ram& Anr ((2012) 252 CTR 228 (Raj.) (High Court)

S.246A: Commissioner (Appeals) – Appealable orders- Order giving effect to revision order u/s 264
CIT having passed order u/s 264 keeping the contentious issues alive by sending the matter back to the A.O. without deciding the same, it cannot be said that the issue have attained finality vide order u/s 264 and, therefore, assessee was entitled to agitate such issues in the appeal against the fresh assessment made by the A.O. pursuant to the order of the CIT (A.Y. 1999-2000)
Jasbir Singh v. ITO (2012) 76 DTR 36 (Asr.)(Trib.)

S.254(1): Appellate Tribunal- Powers- Additional grounds of appeal – Reasons for admission must exist.
A legal issue can be raised at any stage but there should be good reason for admitting the additional ground. The Tribunal allowed the assessee to raise the additional ground in appeal for the first time and then decided the appeal on the merits not only setting aside the order of the Commissioner (Appeals) but setting aside the order of the Assessing Officer. Such approach was neither legal nor proper. The Tribunal had not given the reason for admitting the additional ground and overlooked the fact that the ground did not arise out of the order of the Commissioner (Appeals) which was challenged by both parties. Moreover, the assessment order was passed by the Assessing Officer under section 144 of the Act on the basis of the original return and not on the basis of the revised return. Therefore, the matter was remitted to the Commissioner (Appeals).(A.Y.1996-97)
CIT v. SaharaIndia   (2012) 347 ITR 331 (All)(High Court)

S. 254(2): Appellate Tribunal- Order- Rectification of mistake- Reframing the question  -Revenues miscellaneous application was dismissed. [S.255(3)]
In the instant case, revenue filed the miscellaneous application challenging order passed by Special Bench of Tribunal on three grounds i.e. (i) Special bench had formulated a new question which was not referred by President of Tribunal while constituting Special Bench u/s 255(3). For the said ground it was held that there was mistake in the wording of question mentioned by revenue and question reframed by the SB was within the parameters of reference made by the President. (ii) Special Bench of Tribunal had not considered certain arguments of revenue while adjudicating the issue. It was held that SB had passed a well reasoned order and there was no apparent mistake in terms of scheme of section 254(2) and (iii) Special Bench without giving an opportunity of being heard had considered provisions of section 63 of Indian Contract Act. As regards this question, it was held that it was apparent that special bench had examined issue from another angle in light of provisions of section 63 of Indian Contract Act, 1872 and said exercise of Tribunal was not beyond question raised before it. (A.Y. 2003-04)
Dy. CIT v. Suzler India Ltd. (2012) 138 ITD 1/77 DTR 1 / 149 TTJ 137 (SB) (Mum.)(Trib.)   

S.254(2) :Appellate Tribunal- Order-  Rectification of mistakes –Ex parte order-  Notice refused by illiterate employee – Affidavit filed by the assessee – matter recalled
In the instant case, notice sent by Tribunal was refused by an illiterate employee. On miscellaneous application, Tribunal recalled the matter on the basis that the assessee had filed an affidavit in support of his claim that by refusing notice he was the loser and did not benefit. (A.Y. 2001-02 to 2003-04)
Sudesh Pandey v. ITO (2012) 18 ITR 560 (Indore)(Trib.)

S. 254(2A): Appellate Tribunal- Power-Stay-Judicial conflict whether Tribunal has power to extend stay beyond 365 days has to be resolved in favour of the assessee
The Third Proviso to s. 254(2A), as amended w.e.f. 1.10.2008, provides that if the appeal filed by the assessee is not disposed off within the period of stay granted by the Tribunal (which cannot exceed 365 days), the order of stay shall stand vacated even if the delay in disposing of the appeal is not attributable to the assessee. In Tata Communications Ltd vs. ACIT (2011) 138 TTJ 257 (SB)(Mum), the Special Bench held, following CIT v Ronuk Industries Ltd. (2011)  333 ITR 99 (Bom), that even after the amendment to the Third proviso to s. 254(2A) w.e.f. 1.10.2008, the Tribunal had jurisdiction to extend stay beyond 365 days. However, the Karnataka High Court took the view in CIT vs. Ecom Gill Coffee Trading Pvt. Ltd that after the aforesaid amendment, the Tribunal had no power to extend stay beyond 365 days even if the delay was not attributable to the assessee. The Tribunal had to now consider whether the view of the Bombay High Court & Special Bench had to be followed or that of the Karnataka High Court. Held by the Tribunal:

In Narang Overseas (P) Ltd vs. ACIT (2008) 114 TTJ 433 (SB), it was held by the Special Bench that if there is a cleavage of opinion amongst different High Courts and there is no decision of the jurisdictional High Court on the issue, then the view favourable to the assessee has to be followed. As the view of the Bombay High Court in CIT v Ronuk Industries Ltd. (2011)  333 ITR 99 (Bom) & that of the Special Bench in Tata Communications Ltd vs. ACIT (2011)138 TTJ 257 (SB)(Mum) is favourable to the assessee, that has to be followed and it has to be held that the assessee is entitled to a stay of the demand even after the expiry of the period of 365 days if the delay in disposal of the appeal is not exclusively attributable to it.(A.Y.2000-2001 to 2006-2007)
Qualcomm Incorporated v. ADIT ( Delhi)(Trib.)www.itatonline.org

S.260A :Appeal- High Court- Condonation of delay – Reasonable cause
Appeal filed on 1st July 2005 but directions were passed on 14th Feb. 2006 for removal of office objections on or before 7th March 2007. On appellants failure to remove objections, appeal automatically stood dismissed on 8th March 2006. Office copy of the appeal, however, indicates that all the objections were permitted to be removed and were removed on 28th April 2006. Nature of the negligence does not warrant a dismissal of the appeal for it is possible that the appellant who had taken steps to prosecute the appeal, legitimately expected the appeal to come up for admission on account of the objections having been removed albeit belatedly and had even appointed an advocate to prosecute the appeal. Further, scales in this case must tip in the appellants favour for it the respondent loses, the prejudice would not be as severe upon him as it would be to the revenue if the appeal is dismissed due to the alleged negligence of some of its officers. In the circumstances, the notice of motion is made absolute subject to the appellant paying the costs fixed at Rs.10,000/- to the respondent.
CIT v. Kamal Kumar Johari (2012) 77 DTR 12 (Bom.)(High Court)

S. 260A: Appeal –High Court- Monetary limit- Circular-Earlier view of the same Court that Low tax effect Circular applies to pending appeals is against “public policy”. Suggestions given on how to increase tax base.
The High Court had to consider (i) whether in the light of the judgement of the same Court in Ranka & Ranka (Kar), Instruction No. 3 of 2011 dated 9.2.2011 which states that the department cannot file appeals where the tax effect is less than Rs. 10 lakhs applies to pending appeals and (ii) whether u/s 132B, credit for the cash seized in the hands of another assessee could be given to the assessee. It was held by the High Court that:

(i) Though in Ranka and Ranka it was held by the Court that Instruction No. 3 of 2011 issued by the CBDT is applicable to the pending cases filed prior to 09.02.2011, this view is against public interest and public policy because clause 11 of the said Instruction specifically says that it will be applicable only to cases filed on or after 9.2.2011. The Revenue’s contention that Instruction No.3 dated 09.02.2011 has no retrospective effect is upheld;

(ii)        It is suggested to the Union Government to reduce the tax burden/ rate of Income tax on the existing Income tax payers by bringing more persons under the Income tax net. If so, the existing tax payers would not evade tax and Income tax disputes also will come down. The following suggestions are made:

(a) that all Government servants, under the State/Centre (who are not assessees under the Income Tax), shall be made liable to pay Income Tax of at least Rs. 1,000 per annum;

(b) that all male graduates, who are mentally and physically sound, aged between 31 years to 60 years (who are not assessees under the Income Tax), shall be made liable to pay income-tax at least Rs. 1000 per annum and protect their interest on attaining age of 61 years by providing pension;

(c) that Election law may be amended prescribing a condition that every male person contesting election to the State assembly/ Parliament shall be an income tax assessee;
CIT v.  B Sumangaladevi(Smt) (Karn)( High Court)www.itatonline.org

S.260A: Appeal –High Court- Retrospective amendment-Review petition-Condonation of delay- A Retrospective Amendment does not affect completed matters.
The assessee filed a belated appeal to the High Court u/s 260A. The High Court dismissed the appeal following CIT vs. Mohd. Farooqui (2009) 317 ITR 305 (All) (FB) where it was held that the High Court had no power to condone delay in filing a s. 260A appeal. S. 260-A (2A) was inserted by the Finance Act, 2010 w.r.e.f. 01.10.1998 to give the High Court the power to condone delay. Pursuant to the said retrospective amendment, the assessee filed a review petition and requested that its appeal mat be restored. Held dismissing the review petition:

Though s. 260A (2A) has been inserted retrospectively w.e.f. 01.10.1998 by the Finance Act, 2010, the fact remains that cases already settled before the said amendment cannot be re-opened as per the ratio laid down in Babu Ram v. C. C. Jacob AIR (1999) SC 1845, where it was observed that the prospective declaration of law is a devise innovated by the apex court to avoid reopening of settled issues and to prevent multiplicity of proceedings. It is also a devise adopted to avoid uncertainty and avoidable litigation. By the very object of prospective declaration of law, it is deemed that all actions taken contrary to the declaration of law prior to its date of declaration are validated. This is done in the larger public interest. In matters, where decisions opposed to the said principle have been taken prior to such declaration of law cannot be interfered with on the basis of such declaration of law. The amendment is applicable to future cases to avoid uncertainty as per the ratio laid down in M. A. Murthy v. State of Karnataka and others (2003) 264 ITR 1 (SC), where it was observed that prospective over-ruling is a part of the principles of constitutional canon of interpretation and can be resorted to by the Court while superseding the law declared by it earlier. It is not possible to anticipate the decision of the highest court or an amendment and pass a correct order in anticipation as per the ratio laid down in CIT v. Schlumberger Sea Company (2003) 264 ITR 331 (Cal). Therefore, the amendment introduced in s. 260-A(2A) has the effect only on pending and future cases. On the date when the appeal was dismissed on the ground of limitation, there was no discretion with the court to condone the delay. A discretion has come to the court by virtue of the amendment by inserting s. 260-A (2A). The appeal was (rightly) dismissed as per the then law and the subsequent amendment is not applicable as the matter has already attained finality.
J.B. Roy v. DCIT (All) ( High Court)www.itatonline.org

S.260A: Appeal-High Court- Circular- Low tax effect-Question whether Low tax effect Circular can apply to pending appeals referred to Full Bench.
The department filed an appeal in the High Court in 2008, the tax effect of which was more than Rs. 4 lakhs but less than Rs. 10 lakhs. The assessee claimed, relying on Sureshchandra Durgaprasad Khatod (HUF) & CIT v  Madhukar K. Inamdar(HUF)( 2009) 318 ITR 149 (Bom), that as Instruction No. 3 of 2011 dated 9.2.2011 issued by the CBDT applied to pending appeals and as the tax effect was lower than the sum of Rs. 10 lakhs prescribed therein, the appeal was not maintainable. The department argued that the maintainability of the appeal had to be decided on the basis of the CBDT Instruction dated 15.5.2008 which was in force at the time of filing the appeal. HELD by the High Court:
Though in Sureshchandra Durgaprasad Khatod (HUF) (and other judgements), it has been held that Instruction No. 3 of 2011 dated 9.2.2011 shall apply to pending appeals paragraph 11 of the Instruction itself provides that “This instructions will apply to appeals filed on or after 9th February 2011. However, the cases where appeals have been filed before 9th February 2011 will be governed by the instructions on this subject, operative at the time when such appeal was filed”. The issue requires consideration by a larger Bench. A number of decisions of various High Courts on the subject ( CIT v Kodananad Tea Estates (2005) 275 ITR 244(Mad), CIT v Varinder Construction Co ( 2011) 331 ITR 449 (P&H)(FB), CIT v John L. Chackola(2011) 337 ITR 385(Ker)) were not brought to the notice of this Court in the case of Sureshchandra Durgaprasad Khatod (HUF). We, independently also have serious doubts if the instructions of 2011 can be applied to cases filed earlier. Also, the said Instruction cannot be interpreted on the basis of the litigation policy. Also, prospective application of the instructions would not lead to any absurdity. If by applying the instructions prospectively, certain appeals would be decided on merits, because the appeals were filed prior to issuance of the new instructions, the same cannot be stated to be absurd. A counter situation also may arise if such instructions are applied with retrospective effect to all pending appeals whereby an appeal would be dismissed without examination on merits simply because the same survived for a longer period than the cognate appeals. Sureshchandra Durgaprasad Khatod (HUF) accordingly requires reconsideration.
CIT v. Shambhubhai Mahadev Ahir (Guj).( High Court)www.itatonline.org

S.263: Commissioner-Revision of orders prejudicial to revenue– Charitable purposes – Institution conducting coaching classes and charging fees, matter not investigated by Commissioner , revision  order held to be  not valid. (S. 2(15)
The Institute of Chartered Accountants of India was established under the Chartered Accountants Act, 1949, for regulating the profession of chartered accountants in India. Since the asst. year 1996-97, the CBDT had been approving the Institute under sub clause (iv) of section 10(23C) of the I.T. Act, 1961. Approval under sec. 10(23C) (iv) was granted for the asst. years 2003-04 to 2005-06. The Commissioner withdrew the exemption on two grounds, namely, that coaching activity was under taken by the Institute and the activity was “business” and not a charitable activity. Secondly, it was also held that the Institute had incurred expenses of Rs.164.33 lakhs on overseas activities including travelling, membership of foreign professional bodies, etc., without permission from the Board as required u/s. 11(1)(c). The Tribunal set aside the order of revision. On appeal by Dept. to the High Court.  Held, dismissing the appeal, that the purpose and object to do business is normally to earn and is carried out with a profit motive; in some cases the absence of profit motive may not be determinative. The Commissioner had given no such finding as far as the activities of the Institute were concerned. The Commissioner without examining the concept of business had held that the Institute was carrying on business as coaching and programmes were held by them and a fee was being charged for the same. The order of  revision was not valid.(A.Y. 2005-06)
DIT(Exemptions) v. Institute of Chartered Accountants of India (2012) 347 ITR 86 (Delhi)(High Court)

S.271(1)(c):Penalty–Concealment-Taxability of amount received as security deposit ,two views possible ,no concealment of income.
The assessee was engaged in the business of providing service in connection with obtaining orders from Govt. Departments. The Assessing Officer assessed the total income at Rs.88,582 being interest chargeable to tax under the head “Income from other sources”. The Commissioner (Appeals) noticed  that a sum of Rs.3 crores received by the assessee on March 2, 1998, from D by virtue of clauses 8 to 11 of the memorandum of understanding between D and that the assessee had shown it in the balance sheet as on March 31, 1998, under the head “trade deposits” on the liabilities side. The Commissioner (Appeals) after examining the agreement was of the opinion that the receipt of Rs.3 crores was in the nature of revenue receipt pertaining to the asst. year 1998-99 and since it had not been disclosed and offered for taxation by the assessee in the return as income, he issued notice u/s. 251(2) of the Act for enhancement of income. The Commissioner (Appeals) held that the receipt of Rs.3 cores was in the nature of income and should be taxed in the asst. year 1998-99. The Tribunal confirmed the order of the Commissioner (Appeals) in quantum proceedings. It was held that not only had the assessee disclosed the receipt of the amount of Rs.3 crores from D, albeit, showing it as a liability at that time (as according to the assessee it had not been converted into income) The assessing officer, in fact, went into this aspect specifically and accepting the stand taken by the assessee, did not treat the receipt as income. The issue was dealt with by the Assessing Officer in the quantum proceedings. This would amply demonstrate that the assessee had not concealed the particulars of his income nor was it a case where the assessee deliberately furnished inaccurate particulars of such income. This would also demonstrate that two views were possible and the claim of the assessee was bona fide. Quantum proceedings are independent proceedings and only when the ingredients of s. 271(1)(c) of the I.T. Act 1961, are satisfied, penalty can be imposed. Penalty could not be imposed.(A.1998-99)
CIT v. Mahavir Irrigation P. Ltd.    (2012) 347 ITR 241 (Delhi.)(High Court)

S.271(1)(c ):Penalty-Concealment- Deduction of donation- Loss return- Levy of penalty was held to be justified.
The  assessee has filed a loss return .In the statement of income it has claimed the deduction under section 80G  in respect of donation. As the returned income was loss the assessee was not entitled to deduction . The Tribunal held that as the assessee had not proved that claim was made by mistake and there was no mala fide intention, levy of penalty was held to be justified.(A.Y. 2005-06)
Unison Hotels Ltd. v. Dy. CIT (2012) 138 ITD 39 (Delhi) (Trib.)

S. 271(1)(c ): Penalty – Concealment—Commission disallowance- Failure to deduct tax at source- Failure to file appeal and obtain relief – No penalty warranted. (S. 40(a)(ia).
The Assessing Officer disallowed commission paid to foreign travel agent by invoking the provisions of section 40(a)(ia). The assessee did not file an appeal . The Tribunal held that , merely failure of assessee to file appeal and to obtain legitimate relief cannot lead to inference of penalty.(A.Y.2005-06)
Unison Hotels Ltd. v. Dy. CIT (2012) 138 ITD 39 (Delhi) (Trib.)

S. 271(1)(c): Penalty –Concealment- Furnishing of inaccurate particulars – All particulars like freight receipts, income as per the provision of S. 44B disclosed in ROI – No penalty to be levied where treaty benefits denied on the ground that effective place of management in Mauritius.(S.44B)
Where the assessee has disclosed all the freight receipts in respect of Indian operation in the return of income and has also shown the income as per the provision of S. 44B and calculated tax payable accordingly and claimed benefit of treaty, there cannot be a case of furnishing of inaccurate particulars to invoke penalty u/s 271(1)( c) merely because treaty benefits were denied on the ground that effective place of management in Mauritius was not proved by assessee. (AY 2001-02)
Addl. CIT (IT) v. R Liners Ltd. (2012) 149 TTJ 1 (Mum.) (Trib.) 
Dy.DIT(IT)  v. James Mackintosh & Co. (P.) Ltd. (2012) 149 TTJ 1 (Mum.)(Trib.)

S.271FA: Penalty for failure to furnish annual information  -Appeal-Commissioner (Appeals)- Penalty for failure to furnish annual information is appealable before Commissioner (Appeals and Tribunal. (S.246A,253(1)(c ),271)
Sec. 246A(1)(q) provides for appeals before the CIT(A) against an order of penalty passed under Chapter XXI. Sec. 271FA admittedly falls within Chapter XXI.  Therefore, appeal against an order passed by Director of IT, an officer of the rank of CIT u/s. 271FA is maintainable before CIT(A).  Merely because orders u/s. 271 and 272A passed by an officer of the rank of CIT are appealable before the Tribunal u/s. 253, it cannot be held that an order u/s. 271FA passed by an officer of the rank of CIT should also be appealable before the Tribunal.  Though orders of penalty us/. 271 and 272A fall under Chapter XXI, appeals there from stand excluded before the CIT(A) under the general provisions of S. 246A(1)(q) by virtue of the specific provision u/s. 253(1)(c). Consequently, an order u/s. 271FA is appealable u/s. 246A(1)(q).
DIT v. Ravi Vijay & Anr(2012) 252 CTR 228 (Raj.) (High Court)
Director of IT v. Balu Ram& Anr ((2012) 252 CTR 228 (Raj.) (High Court)

S. 272B: Penalty- Failure to comply with provisions of S. 139 – Permanent account number- Non production of relevant documents at the time of survey.(S.139 )
The Assessing Officer levied the penalty for non production of relevant documents at the time of survey. In an  appeal, Tribunal accepted the explanation of the assessee and the relevant documents could not be produced at the time of survey of its premises on account of shifting of its branch shortly before the survey and that the same were furnished afterwards within a period of two weeks. The High Court held that  there is no error in the reasoning of the Tribunal and therefore, the impugned order calls for no interference. Appeal of revenue was dismissed.
ITO v. Adinath Co-op. Bank Ltd. (2012) 252 CTR 222 (Guj.)(High Court)

S. 292B: Return of income not to be invalid on certain grounds- Notice – Only one irregularity in notice – Minor omission of some words, does not invalidate notice.(S.143 )
Merely compliance to notice may not validate a notice which is totally illegal, however, where there is only an irregularity in notice which is otherwise in substance in conformity with intent and purpose of act, notice cannot be deemed to be invalid. Minor omission of some words, does not invalidate notice in view of s. 292B. (A.Y. 2002-03)
ITO v. Mukut Finvest & Properties (P.) Ltd (2012) 138 ITD 166 (Delhi)(Trib.) 

S.292CC:Authorisation and assessment in case of search or requisition-Search and seizure – Authorisation  in joint names-In view of section 292CC with retrospective effect from 1st April , 1976 , authorization in joint names was held to be valid , and matter was set aide to Commissioner (Appeals) to decide the appeal on merits.(S.132,132A)
The court held that the effect of insertion of S. 292CC with retrospective effect from 1st April, 1976 is that (1) it is not necessary for the authorities to issue an authorization u/s. 132 or requisition u/s. 132A separately in the name of search person; (2) if an authorization/requisition has been issued in the names of more than one person, it shall not be construed that it was issued in the name of AOP or BOI, consisting u/s. 132A in the names of more than one person, the assessment or reassessment can be made separately in the name of search of the person mentioned in the authorization/requisition. As the provisions of S. 292CC have come into force retrospectively i.e. from 1st April, 1976, it shall be deemed that the aforesaid provision was on the statute book i.e. The IT Act, 1961 since 1st April 1976 and the consequence of issue of a warrant of authorization under sec. 132 if issued in joint names of more than one person has to be adjudged in the light of the provisions of s. 292CC.In the present case the warrant of authorization under section 132 has been issued on 10th Nov, 2006 in the joint names of three persons , In view of section 292CC with retrospective effect from 1st  April , 1976 , authorization in joint names was held to be valid , and matter was set aide to Commissioner (Appeals) to decide the appeal on merits. Both the orders passed by the Commissioner (Appeals) and the Tribunal are set aside and the matter was remanded to the Commissioner (Appeals) to decide the appeal on merits. (A.Ys. 2001-02 to 2006-07)   
CIT v. Devesh Singh (2012) 252 CTR 356  / 76 DTR 403 (All) (FB ) (High Court)

Wealth Tax Act
S. 5(vi): Exemption – Assets – Plot of Land – Land wrongly shown taxable on return – Held that exemption cannot be ignored, as provided by statute
In the instant case, the assessee wrongly shown a plot of land admeasuring 336 sq meters as taxable. As per the provisions of section 5 and wealth Tax Act, land admeasuring an area of 500 sq meters or less is not chargeable to wealth tax as per provisions of section 5(vi) in return of wealth. It was held that even if assessee had not made any claim for exemption in return of wealth, exemption u/s 5(vi) could not be ignored, which is provided by provisions of  the Act. (A.Y. 2007-08)

Interest – tax Act, 1974 

S.13: Penalty – Concealment – Non-inclusion of bill discounting charges in chargeable interest, Levy of penalty was held to be justified.
Sec. 13 stipulates that penalty can be imposed when an assessee has furnished inaccurate particulars of interest or concealed particulars of chargeable interest. It does not use the word `deliberately’, `wilful’ or `wilfully’. Though this section does not have any explanation as in the case of S. 271(1)(c) of the IT Act, 1961, this does not mean that penalty cannot be imposed where an assessee has furnished inaccurate particulars or  concealed particulars of chargeable interest. It is well settled that establishment of mens rea is not the requirement or a condition precedent to impose penalty. Question of mens rea is important and relevant in criminal proceeding and not for the purpose of civil penalty u/s. 13. As per s. 2(7), for the purpose of interest tax Act, bill discounting charges have to be treated and regarded as `interest’. Term `interest’ as per s. 2(7) as amended w.e.f. 1st Oct. 1991, is absolutely clear and unambiguous. Two divergent views on interpretation of S. 2(7) are not possible Reliance placed by the assessee on Circular No.647 of 1993 dated 22nd March, 1993 is entirely misconceived. Said circular was issued to explain the applicability of the provisions of S. 194A of IT Act,1961, 1961, and not        s.2(7) of interest tax Act. Thus, it cannot be accepted that there was a genuine difference of opinion on the question “whether or not bill discounting charges could be treated as interest”. Declaration or statement in the return that the said amounts were not included for the purpose of tax may show/establish absence of mens  rea but, this by itself does not justify cancellation or quashing of penalty. Penalty u/s. 13 was therefore sustainable. (A.Y. 1996-97 & 1997-98)

Right of information Act
S.8(1): Income-tax details can be disclosed under RTI only if in “larger public interest”
It was held by the Apex Court that the details disclosed by a person in his income tax returns are “personal information” which stands exempted from disclosure under clause (j) of Section 8(1) of the RTI Act, unless it involves a larger public interest and the Central Public Information Officer or the State Public Information Officer or the Appellate Authority is satisfied that the larger public interest justifies the disclosure of such information. On facts, as the Petitioner has not made a bona fide public interest in seeking information, the disclosure of such information would cause unwarranted invasion of privacy of the individual u/s 8(1)(j) of the RTI Act.
Girish Ramchandra Deshpande v. CIC (SC) www.itatonline.org

Service Tax

Service Tax Act –Taxable service-Service by consulting engineer – S. 65(105)(g) – Finance Act, 1994  – Rule 8A of Wealth Tax rules 
A person who is not an engineer is also qualified to render services as a valuer as evident from the qualifications prescribed for valuers in r. 8A(2) of the WT Rules, 1957 and therefore, services rendered by a valuer, whether an engineer or any other person, are not in relation to advice, consultancy or technical assistance in any one or more  disciplines of engineering and accordingly, qualified engineers who act as valuers do not fall within the ambit of term “consulting engineer” as defined in the Finance Act, 1994, to the extent of valuation services rendered by them and such services are not exigible to service tax.
Institution of Valuers & Anr v. UOI & Anr, (2012) 76 DTR 315 (Guj.)(High Court)

Reports-

Articles
S.4: Income- Controversial issues in treating the receipts as revenue receipts or capital receipts by N.M. Ranka (2012) 252 CTR 83 (Articles)

S.32: Depreciation- Used for the purpose of business or profession for depreciation under section 32.By Pradip Kapashi , Gautam Nayak ( 2012) BCAJ –October – P. 45

S.44AD: Civil construction- GAG report- Audit by comptroller & Auditor General of India of Income tax Assessments concerning business of Civil Construction  by T.N. Pandey  ( 2012) 252 CTR 52 (Articles)

S.56(2)(vi):Income- Taxation of gifts received by an individual from Hindu Undivided family by R. Raghunathan  ( 2012) 252 CTR 46 (Articles)

S. 56(2)(vii):Income- Scope of section 56(2)(vii) with special reference to ‘Relative’ by K. Kumar ( 2012) 252 CTR 25 (Articles)

S.90: Non-Resident   Assessee-Whether treaty benefits can be denied in absence of TRC- Certainly not at time of making payment. by  Gopal Nathani ( 2012) 348 ITR 1(Journal)  

S.132: Search and seizure –Seizure of valuable stock in trade –irrational statutory slip by Minu Agarwal ( 2012) 252 CTR 81 (Articles) 

S.147:Reassessment- Critical analysis of the judgment in the case of M.N.Dastur and Co Ltd  v.CIT  by B.V.Ventataramaiah ( 2012) 252 CTR 41 (Articles)

S.220(6):Recovery- How to deal with stay applications by D.S.Walia ( 2012) 252 CTR 60 (Articles)

S. 246A: Commissioner (Appeals)-Stay- Stay petition before Commissioner (Appeals) and recovery of the disputed income-tax demand during the pendency thereof  by  S.K.Tyagi (2012) 346 ITR 61 (Journal)

A.
Advance Rulings- Is AAR no longer an efficacious remedy ? Supreme Court up holds High Courts’ s   writ Jurisdiction against   AAR  Rulings  by, Rustam  Singh Thaur , Karan deep  Makkar (2012) 209 Taxman 93 ( Mag.)

B.
Black money- Withdrawal  of High Value notes of Rs 1000 & 500 –An impracticable suggestion for eradicating Black money  by:  T.N. Pandey ( 2012) 209 Taxman 89 (Mag.)

G.
GAAR- General Anti Avoidance Rules (AAR) – Analysis of the recommendations made by the expert committee by Arinjay Kumar Jain ( 2012) 209 Taxman  99 (Mag. )
GAAR- Emergence of General Anti –Avoidance Rules by A.J.Majumdar ( 2012) 252 CTR  29(Articles)

H.
Hindu Succession Act-Aspect of Hindu Joint family and the effect of Hindu (Amedment)(Act, 2005  by K.H.Kaji assisted by Manish K.Kaji ( 2012) 348 ITR 12(Journal)  

S.
Service tax- Compounding provisions in service tax by Dr. Sanjiv Agarwal (2012) 252 CTR 93 (Articles)

T.
Trust- Status of Trust in income-Tax  by K.Kumar( 2012) 348 ITR 4(Journal)
TDS- Widespread litigation in TDS- Need for wide  scale reforms( 2012) 348 ITR 9(Journal)

W.
Wealth tax- Why wealth –tax law is being continued as lame duck legislation? BY  T.N.Pandey ( 2012) 209 Taxman 33 (Mag.)(Article)